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The investor’s guide to the 2015 Market Crash

Still not sure what to make of the recent market crash?

You’re not the only one with investors all around the world scratching their heads, not only trying to work out what’s happened so far but also what’s going to happen next.

Debates and arguments have even erupted regarding whether this is the start of a bear market crash or the end of a much needed correction.

Others have said that another “Global Financial Crisis is imminent” and that we should be worried, while others have said the fundamentals remain strong and now is an excellent buying opportunity.

While I certainly won’t profess to have all the answers, here is a quick recap of what’s happened so far. Hopefully this will help you to make some more sense of the overall situation.

Recent developments

  • China devalued its currency in a bid to strengthen its exports.
  • Australia’s Big Four banks have raised $16 billion in capital so far, with experts expecting another $25 billion to be raised in the near future.
  • The two biggest raisings came from Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB), raising $5 billion and $5.5 billion, respectively.
  • Recent earnings reports from the banks show that earnings growth is becoming harder to come by while bad debt charges will likely soon begin to rise.
  • Investors have been left somewhat disappointed by a number of lacklustre earnings reports this August, impacting the market’s overall sentiment.

Monday

  • The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) plummeted 4.1% on Monday, shedding 213 points after Wall Street crashed on Friday night.
  • $60 billion was wiped from the local market while hundreds of billions of dollars vanished from global shares
  • The Shanghai Composite also crashed 8.5%, causing another 3.9% fall for the S&P 500 in the United States. London’s FTSE 100 soon crashed 4.7% as fear spread around the globe.
  • The US ‘fear index’ – the VIX – soared 45% to levels seen in the 1997 Asian Financial Crisis, the dot-com bust and, most recently, the 2011 crash.
  • The Australian dollar plunged to a low of US 70.97 cents, although it has since rebounded to US 71.33 cents.

Tuesday

  • The ASX 200 crashed another 1.5% early, hitting a two-year low of 4928 (down nearly 18% from its high earlier in the year).
  • All four major banks also crashed to fresh multi-year lows
  • The ASX soon rallied, hitting a high of 5207 points – up 4.1% — before ending the session 2.7% higher at 5137.
  • Elsewhere, the Nikkei entered correction territory and crude oil and iron ore both collapsed, down 6.3% and 5% respectively.
  • China cut its interest rates for the fifth time since November to spark economic growth
  • The FTSE 100 rose 3.1% while the Dow Jones and S&P 500 in the United States only fell 0.6% and 1.3%, respectively.
  • BHP Billiton Limited (ASX: BHP) said it now expects Chinese steel production will peak between 935 million tonnes (Mt) and 985 Mt by 2025. That compares to the miner’s previous forecast of 1 billion tonnes between 2025 and 2030, highlighting the nation’s slowing growth.

Now

  • The market looked set for another bloodbath with the ASX 200 falling 1.7% early, although it has rebounded to trade just 0.7% lower currently.
  • Investors are questioning whether the US Federal Reserve will still be able to increase interest rates next month, or if it is now too late to do so.
  • Investors are also pointing to another official Reserve Bank of Australia interest rate cut, which could take the cash rate to a new record low of 1.75%.

Of course, there’s more to the market’s crash than what I’ve mentioned above, but that should at least provide some perspective to the recent events.

As tempting as it may be to sell into the fear and panic however, investors would be wise to get their emotions in check first; remind themselves that volatility is normal in stock market investing; and remember that they’ve invested in businesses rather than simply ticker codes.

Put another way, would you panic and sell your family home if you found out its value had suddenly dropped by 10%? It’s unlikely…

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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