Investing
Key information
Recent market volatility has been driven particularly by falls in US technology shares, as investors reassess high valuations, AI investment and the potential impact of political change. Key considerations include:
- US technology shares have experienced sharp falls over recent days
- Questions remain over whether high levels of AI investment will deliver the returns expected
- Other assets, including government bonds, have responded differently to the market uncertainty
- Diversification and a long-term perspective remain important during periods of volatility
It has been a volatile few days for global markets following the US midterm elections, with some of the largest falls seen among technology companies.
With greater Democratic influence in Congress, attention has turned to what this could mean for areas such as technology and artificial intelligence. This comes at a time when valuations among some of the largest technology companies remain high, with investors increasingly questioning whether the significant sums being invested in AI will deliver the returns expected. Together, these concerns contributed to the sharp falls in US technology shares.
Keeping short-term movements in perspective
Periods of volatility can understandably feel unsettling, particularly after sharp market movements over a short period. But they are also a normal part of investing.
Markets continually adjust to new information, whether that is political change, interest-rate expectations, economic data or developments affecting individual sectors. This can result in significant short-term movements as investors reassess the outlook.
It is during periods like this that the principles of diversification and long-term investing become particularly important. Spreading investments across different markets, sectors and asset classes can help reduce reliance on any single area, while taking a long-term perspective can help investors look beyond the day-to-day movements that inevitably occur along the way.
There have also been different reactions across markets. While technology shares have come under pressure, government bonds have benefited as investors have moved towards more defensive assets, demonstrating how different investments can respond differently to changing conditions.
How our portfolios are positioned
Our portfolios are designed with diversification at their core, with investments spread across different markets, asset classes and sources of return.
Alongside exposure to US markets, we invest in areas including Japan (where changes across the corporate sector continue to create opportunities for investors), smaller companies and emerging and frontier markets. We also hold government bonds and alternative investments, while in some portfolios we have used specific protection against significant falls in US technology shares.
Together, this broader positioning is designed to reduce reliance on any single market or investment theme and help portfolios navigate different market conditions.
Looking ahead
There is likely to be continued focus on US policy and the outlook for technology and AI investment in the weeks ahead. As ever, markets will also be influenced by the wider economic picture, including inflation, interest rates and economic growth.
While it is natural to focus on significant daily market movements, successful investing is ultimately about the longer term rather than responding to individual days or events. Maintaining a diversified approach and keeping short-term volatility in perspective remain important principles when navigating changing market conditions.
The value of investments can fall, as well as rise, and you might not get back the original amount invested. Exchange rate changes affect the value of investments. Past performance is not necessarily a guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios and is referenced for illustrative purposes only, not as a recommendation, not least as it may not be suitable. You should always seek professional advice before making any investment decision.
What this means for you as a Nedbank Private Wealth client
Recent market movements are a reminder of why our portfolios are diversified across different markets, asset classes and sources of return. Our portfolios are designed with diversification at their core, with investments spread across different markets, asset classes and sources of return. This broader positioning helps reduce reliance on any single market or investment theme and is designed to help portfolios navigate periods of volatility.
