Market volatility offers opportunities

August was a rough month for investors with geopolitical issues inducing volatility.

Historically, we have seen periods of market uncertainty resulting in the indiscriminate selling of riskier assets and markets whose fundamentals are unlikely to be affected much by current concerns.

Periods of indiscriminate selling present an opportunity for value-oriented investors to invest in financial assets which have gotten cheaper, or rebalance their portfolios to increase their positions in cheaper markets while lowering their allocation to more expensive ones.

The recent market corrections have placed Asian equities in a more attractive valuation and give investors a better entry point to markets such as China and the greater China region.

Nevertheless, market volatility can put one’s investment discipline into serious test, which may leave many investors selling out of markets at precisely the wrong time.

We have run through our database and filtered 10 of the best and worst performing trading days for the Hang Seng Mainland (HSML) 100 Index and MSCI Asia ex-Japan Index year-to-date (YTD).

Our findings show the cumulative returns delivered YTD over the markets best 10 days were 16.2% and 12.3% for the HSML 100 Index and MSCI Asia ex-Japan Index respectively.

We have observed that the days which have delivered the worst returns may also be followed by days which have delivered the best returns.

Investors who have sold off their holdings in response to a downward market movement in an attempt to time the market may have missed out on some of these following best days of the stock market, which may have eaten into their returns. Staying invested is probably the better option.

Additionally, investors who have a huge portion of their portfolio holdings in equities may find their portfolio performance tending to sway in accordance to market volatility.

While investors may have derived decent returns from global equities thus far, they should be wary of fixating themselves on achieving strong returns via equity markets.

Most investors tend to neglect fixed income and deemed it as a “boring” asset class whose returns pale in comparison with those of equity markets. We continue to advocate investors to have a balanced mixed of equities and fixed income with respect to their risk profiles when it comes to managing their investment portfolios.