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BusinessFebruary 7, 2018

Cheat Sheet: Are we facing stock market armageddon?

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Welcome to the Cheat Sheet, a clickable, shareable, bite-sized FAQ on the news of the moment. Today, we take a wild ride with global share markets.

There’s carnage on Wall Street!

Well, not exactly. Carnage means of the flesh, and while it’s nice to imagine corporate fat-cats sliced and diced 70 ways, no-one has actually been slain. That we know of.

But something is happening there, right?

Yes. It’s been an up – but mostly down – old week for US stock markets. Fresh from Trump-trumpeted record highs, Monday saw the Dow Jones’ index of 30 corporations including Apple, Boeing and 3M plunge more than 1000 points (or 4.6%) in a day, the biggest drop since 2011 and hot on the heels of a 666 point drop on the previous Friday. Hmmm. But misery loves company, so the S&P 500 and the Nasdaq also fell. Some of the losses have been clawed back, but the dramatic market moves in the US are impacting share markets around the world including our NZX, which was down about 1.6% today. It’s surpassed 2008 and the GFC, but is still nowhere near the size of the Black Monday (1987) drop. You remember that right?

So what’s the problem exactly?

No problem, just markets doing what they do. They go up, and they go down. And yes it may seem irrational, but that’s people for you. Not much the markets can do about them. If you own stocks obviously the market going down means (on paper anyway) your investment has decreased, but you’ll only realise the loss if you sell while they are down. If you are buying stocks – hooray! They just got cheaper.

Yes because so many of us own stocks in global markets.

Well, not so fast there with the sarcasm. Depending on your fund, your KiwiSaver is likely invested in global stocks, so those holding shares in US companies have seen investment values fluctuate wildly this week – but again, you only book a loss if you sell. About 2.7 million of us have more than $40 billion invested in KiwiSaver, a decent chunk of that in offshore shares. And with about 36% of KiwiSaver members aged 18-35 and a further 25% aged between 35-50, this means (probably) you.

So we shouldn’t panic then?


You sure?

Yes. Not yet. But if you won’t take my word for it, Kiwi Wealth’s general manager for customer, product and innovation Joe Bishop says the “minor correction” comes off the back of a sustained period of rising share prices, but the fundamentals of the US economy haven’t changed for the worse. So don’t panic. And after all, KiwiSavers are for the long-term, so as long as you are in the right fund for your stage of life, it’s FINE. 

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