We recently wrote a post addressing volatility in China – in just one months’ time (mid-June to mid-July), the market there lost one third of its value.1 The wild swing in Chinese equities did not necessarily send shock waves through the global markets (which remain slightly positive on the year), but it did effectively raise eyebrows amongst investors curious if the downside volatility could be contagious.
They might have a point. If you consider the ongoing Greece sovereign debt crisis, the persistent geopolitical threat posed by ISIS, concern over slowing growth rates in China, and the relative calm in the domestic equities markets (S&P 500) over the last few years, it feels like there could be an opening for increased volatility.
Taking a look at the chart below, you can see that from 2012 – 2014, the market has had very few 5+% pullbacks, which draws a sharp contrast to the previous three years and to history in general. Indeed, moderate pullbacks happen frequently even in normal times.
