Understanding And Managing Market Turbulence. Article

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Understanding and Managing Market Turbulence.

At the end of February – beginning of March 2007 world financial markets have been highly volatile. But what was causing this volatility, and what does it mean for investors?

Author: Carlo Scevola

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The initial trigger for the huge market turbulence was the possibility that the Chinese government would impose taxes aimed at stopping speculative activity and controlling the speed of growth in the country’s market, which has doubled in value over the past 12 months. The rumors set off a sudden wave of selling in China, sending China's stock market index down by more than 8% in a single day which was its’ steepest decline since the September 11 attacks in 2001.

The initial trigger for the huge market turbulence was the possibility that the Chinese government would impose taxes aimed at stopping speculative activity and controlling the speed of growth in the country’s market, which has doubled in value over the past 12 months. The rumors set off a sudden wave of selling in China, sending China's stock market index down by more than 8% in a single day which was its’ steepest decline since the September 11 attacks in 2001.

This strong decline was accompanied by a tremendous volatility in the global market. Over the course of just five days, the principal stock exchanges of Europe lost an average of 6.9%. In the United States, the Dow Jones dropped 4.6% and the S&P 500 dropped 5.19%. These declines are slight in comparison with the losses suffered in the stock exchanges of emerging markets. In Latin America, the Buenos Aires exchange plunged 12.58% during this period; the Bovespa in Brazil dropped 10.88% and the IPC in Mexico fell by 8.05%.

Of course circumstances leading up to the crises varied across countries and regions. But each of these events had one dynamic in common - the confluence of a sharp increase in risk perception, and the subsequent actions taken by financial institutions and investors to limit their exposure and to hedge against further losses.

With the recovery of the market and continued market volatility, Resolute Capital Growth Fund (www.rescgf.com Bloomberg: RESCGFL) has captured profits while lowering volatility, thereby preserving capital and delivering positive returns under all market conditions.

Volatility can, and should, be expected along the way and we encourage investors to use this market volatility to reassess their asset class weightings and level of risk in their portfolios. While market corrections are not pleasant for investors we consider it normal and expect such market movements on occasion. The truth, of course, is that without risk no investment would ever produce a return worthy of the name.

Volatility expectation can be forecasted using historical volatility that is a measure of how much an exchange rate or any asset has varied, on average, over a specified period, say one year. As its name suggests, historical volatility is backward looking. This measure has the advantage of telling us something about expected volatility over the certain timeframe. It therefore has a forward-looking component.

Achieving ideal returns by managing and diversifying away risk is a weightier issue than ever for Resolute Capital Growth Fund. In our view market-neutral investing is one of the hottest strategies for achieving downside protection. Resolute Capital Growth Fund opens investors up to new thinking on highly effective approaches to return enhancement and risk reduction through our market-neutral investing techniques that hedge exposures to neutralize the impact of market volatility on investment performance. Resolute Capital Growth Fund has shown it can outperform in down markets as well as in up markets, and, if there were a recurrence of such market condition, we would expect a similar outcome. The objective of the Fund is to achieve consistent equity growth regardless of market conditions by investing in the global markets using the most advance asset allocation process.

The never-ending dilemma for investors is to decide to what extent they should remain invested in risky assets when risk premiums have been eroded. Focus your concern on your portfolio allocation, your portfolio diversification, and whether your investments are inline with your expectations. With RESCGF you can enjoy the long-term benefits regardless of the market conditions, because we accept volatility and we learned to ignore it. Considering the current state of global markets, our approach will not change moving forward. We will continue to proceed with caution given the state of financial markets, a strategy that has proven to be a sound approach in light of recent events.

About Author

Mr Carlo Scevola
Founder & Director
Resolute Capital Growth Fund Ltd
http://www.rescgf.com
E-mail: info@rescgf.com
Wattley Building, 160 Main Street,
PO Box 4443, Road Town,
Tortola, British Virigin Islands
Telephone No.: (284) 494 0732
Facsmile No.: (284) 494 0014

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Understanding and Managing Market Turbulence.