Asian stock markets are back in choppy waters amid uncertainty caused by concerns on how much damage the Omicron variant of Covid-19 will cause the global economy.
Major indices in the region have mainly fallen this week with a few exceptions, such the Shanghai Composite, which added 0.2% on Tuesday. The mixed market reaction comes as analysts struggle to reach a consensus about how the new strain will make an impact.
Some argue that it will have a reduced fallout, compared with last year, as more people are vaccinated than ever before. But the vaccination rollout rate differs considerably by country across the region – for example, it’s about 77% in Japan, 50% in Vietnam and 35% in Indonesia.
In Asia, the Omicron variant has at this writing only been officially detected in Hong Kong, but the region is bracing for more cases, which could mean a setback for continuing economic rebounds.
Perhaps unsurprisingly, all of this has created more questions than answers – which markets hate – and therefore we’re seeing increasing levels of volatility.
So where does all this leave investors?
Fluctuations can be concerning, but the best course of action is to stick with your previous investment plan and even embrace the volatility.
Markets by their very nature will go up and down many times during a person’s investment career, so it’s optimal to take a long-term approach and not react to short-term market changes. The good news is that market losses generally don’t last for too long – they’re typically a temporary phenomenon.
No one can tell when the market has hit the top or bottom of a peak or trough, but markets are predictable over the long term. As history teaches us, markets generally go up and the gains are strong.
As such, by not staying invested, you’re likely to miss out on potentially significant future gains.
Market volatility is a normal part of the investment process and, arguably, the best way to outpace inflation.
It should be remembered also that despite turbulence, long-term market outcomes are still based on the same factors: dividend yields, earnings growth and change in valuation.
The see-sawing markets are a chance for investors to put new money into markets at lower prices, enhancing their portfolio. A slump in the market means that there are high-quality equities available at more attractive prices.
Investors would be wise not to sit on the sidelines waiting for calmer waters in the markets. Instead, they should ride the wave of volatility for their longer-term wealth, security and freedom.
Nigel Green is the founder and CEO of deVere Group.