I continue to believe we are entering a more normalised period of risk asset market volatility after many years of extraordinarily low volatility. The “flash crash” this week, more than likely, signals the end of the ultra-low volatility period, as it was primarily driven by the forced unwinding of ultra-low volatility leveraged ETFs. There’s some irony in that!
It’s important to attempt to explain what happened on Wall St this week that caused kneejerk ‘risk off’ reactions in all global equity markets. Once we understand what happened, we can then look for investment opportunities amongst this.
I’m going to quote directly from a Bloomberg article, which succinctly summarised the events of Monday and Tuesday morning in Asia.