Australian Market’s Current State Leaves Investors Skittish

A rollercoaster ride…this is how others describe the conditions of the Australian sharemarket since June of this year, as it has jumped and changed to more than what has been expected.

The local bourse is on the constant move, jumping from 1% to 2% for at least six times. This week alone, it has been jumping to more than 1% daily and as a result, the ASX Volatility Index (VIX) has moved up to 19.1%, from 17%.

In four days of this current month, the VIX had risen to 14.5%, then fell to 7.5%, only to rise to 12%, but was followed immediately by a 7.3% fall.

Sometime last May, the US Federal Reserve said that it may regain its US$ 85billion bond buying program because of recent conditions in the financial markets. Chairman Ben Bernankhe of the US Federal Reserve said, ”In light of the current low interest-rate environment, we are watching closely for instances of ‘reaching for yield’ and other forms of excessive risk-taking, which may affect asset prices and their relationships with fundamentals.”

With that, Dow Jones Industrial have peaked at more than 17%, affecting the Australian market, which has jumped to 12%, before settling down at 7.4% in its present level.

Is the world’s economy already recovering?

Experts in the financial markets are still not set on this. One analyst notes, ”People are still unsure what the end of quantitative easing, or the withdrawal of stimulus globally, really means.”

Some investors may think that the market has reached a turning point. But others remain cautious as these changes may “trigger a slowdown”, according to the same analyst.

Investors also take caution when it comes to the Australian market following China’s banking crisis.

Says one financial expert, ”We have seen continued selling from overseas investors, mainly institutions, who are taking a negative view on the Aussie dollar.”

What should be taken into account, however, is that despite the sudden jumps and changes in volatility, historically, these figures are still way lower compared to the Lehman Brothers crisis, which has collapsed the banking industry in 2008.