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Volatility is the future

19 October 2015

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William Hague and Stephanie Flanders speaking at the NAPF conference this week talk of volatile times ahead. 

Speaking at the NAPF conference on Thursday, William Hague shared his predictions for an undefined future.

"We are to expect uncertain and volatile times on a global scale."

This echoes the forecast Stephanie Flanders, chief market strategist for the UK and Europe at J.P. Morgan Asset Management made the previous day, investors are to expect "volatility and no less of anything but volatility" she said.

Hague voiced concerns over the ongoing EU debate and declared that "we are in the beginning of problems in the Eurozone and not the end".

The problem, he explained, is not just with Britain deciding on their stance within the European Union, but the problems already happening within the Eurozone and the effect these problems will have in the future.

"We need to be able to make decisions on the future being unstable and flexibility is needed in those decisions", Hague added. Losing power of UK business and economic decisions is something David Cameron hopes to discuss and rule out during his meetings with EU leaders.

The global markets have seen difficulties this year, particularly during the summer when China's trade market crashed. This had a massive impact on the emerging markets that depend on traditional Chinese trade.

"The trade and export market isn't helping countries get out of trouble", Flanders commented, and countries are therefore looking to create wealth at home. "Domestic demand grows and productivity increases".

This kind of economic growth strengthens those countries who can afford to spend; emerging markets cannot respond in the same way and are suffering with the downturn in trade.

Despite these downturns there is an overall trend in the world wealth, but major oscillations are on the way.

And Flanders reassuringly added: "It isn't all bad."

She thinks we can plan for instability:risk pays in volatile times. "[If we] deal with the ups and downs in a volatile market then we can come out good at the end."

Investors can benefit from a volatile market; there is however a natural aversion to investing in a volatile market but it can work for long and short term goals. Low volatility and managing sequence risk can be less cost effective and at times this insurance premium can be too expensive. Investing in a volatile market can offset those costs.

"Short-term investors may find that volatility management techniques are useful. However, for those focused on the longer term, volatile markets can present significant opportunities", Flanders concluded.

Hague also ended with some positive thoughts. "You have to be optimistic" he said, "people are happier, healthier and living longer."

First published 16.10.2015

ceri.pugh@wilmingtonplc.com