The ASX has seen its second-worst start to the year in 40 years so far in 2016 – only in 2008, in the midst of the GFC, did the index perform so poorly at the opening of the year.

To date, the ASX All Ordinaries – which includes all large and small companies – is down 7.29 per cent, and the ASX 200 – which reflects the largest businesses on the market – is down 7.41 per cent year-to-date.

That translates to a whopping $130 billion wiped off the value of Australia’s stock market in 2016 alone.

Also read: Aussie dollar heading for 2008 lows

The plunge was sparked by widespread falls on Wall Street, which in the first 10 days of trading had suffered its worst-ever start to the year on record.

The fall in stock prices reflects concerns about China’s growth outlook, falling commodity prices and the effect of higher interest rates following the US Federal Reserve’s policy rate rise in December.

In fact, continued volatility and uncertainty about the Chinese economy has only been exacerbated against a backdrop of divergent central bank policy action in Europe and the US, reemergence of geopolitical risk in the Middle East and collapsing oil prices, according to Kodari Securities (KOSEC).

Also read: ANZ heatmap tips RBA rate cuts in May and August 2016

“There is also a belief among many market participants that we have reached a peak in the US corporate earnings cycle as lethargic global growth and a high US dollar weigh on US exports to the rest of the world,” KOSEC chief executive Michael Kodari said.

He adds that the recent upheaval appears to have created a “distinct gap between financial markets and economic reality”, with market sentiment only reflecting overblown expectations of a cataclysmic scenario.

As for what happens next, no one knows – every year presents its issues and 2016 will undoubtedly be no different.

While these issues can create uncertainty and panic for some, others take advantage of volatile share markets in order to buy stocks they wouldn’t normally afford.

“Personally, I like bear markets because shares get cheap, sometimes stupidly so,” John Addis, editor at Intelligent Investor said.

“Having been watching this kind of thing for almost three decades now, I know that the price you pay when you buy, not the price you sell, is the biggest determinant of returns – if you can buy cheaply, you will do well.”

Also read: Oil prices crash, why haven’t Aussie petrol prices followed?

Intelligent Investor has already upgraded a few stocks in the resources sector, although Addis said it is likely we have not necessarily reached the bottom of the commodity price cycle – prices could still fall further.

“Australia may yet face a recession.”

“But good businesses survive and prosper in such times and right now, there’s quite a few attractive share prices, especially in the online classifieds sector and high quality growth companies,” Addis said.

Also read: Why the Big Mac suggests the Aussie dollar is undervalued

Kodari added that in the medium term, investors with a portfolio of quality companies with growing earnings will probably find that these declines are superfluous.

“We are careful not to forecast specific figures when it comes to the index, but given the huge selloff we’ve experienced in the early stages of 2016 the likelihood is we will recover some of those losses in coming weeks particularly if the upcoming earnings season in the US and Australia exceed modest expectations,” Kodari said.

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