Robert Armstrong, from the Financial Times, and writer Giles Wilkes explore a history of bear markets and ask whether a market rout always leads to a recession.
Tag Archives | Global Markets
The latest asset allocation update from JBWere New Zealand’s Investment Strategy Group stops short of calling an end to the bull market but describes the global economy as “stuck in third gear” and sees possible rate hikes by central banks as a bigger risk to equity markets than China’s flagging economy.
Low US interest rates has been “a major contributor” to the bull run of recent years but JBWere foresee a threat to equities if central bankers “began worrying about inflation and hiking rates accordingly.”
Whilst this may be some way off, the group has been tempering its clients’ return expectations. “A double-digit [return] year in equities is not the norm” it says, even though “a bull market can still be high single-digit returns”.
Recent falls in the local sharemarket was creating buying opportunities but, with volatility increasing, JBWere has been putting clients into overseas hedge funds, which can profit in both rising and falling markets.
As for China, the group doesn’t think the economy was heading for a so-called ‘hard-landing’ but rather “a bumpy, managed slowdown” especially as a severe downturn would put political stability at risk – something the authorities would obviously be keen to avoid.
Based on the maxim that “when a consensus grows strong enough, there are great profits to be made from betting against it”, John Authers made a case in the FT recently for investing in European stocks, albeit “for those with patience”.
The current consensus, established once markets began to rally after the 2008 financial crisis, is that “the US will be fine, while Europe will not”.
Whilst agreeing that this is in fact based on reality and also that established market trends can continue long after the reality that established them has altered, Authers suggests that the current price of US and EU stocks compared to their respective average earnings can only be justified if the US boom continues while Europe falls further into recession.
This he says is “hard to swallow” with European corporates now “positioned for a revival”. Also the US economy could grow too fast, sparking inflation and causing higher interest rates that would hit share prices.
The conclusion is that the US cannot continue to stand alone and the consensus on growth stateside will actually pull the eurozone with it. Hence “European stocks will outperform US stocks over the medium term”.
The price of oil continues to fall. After a slump of nearly 7% in one day late last month, caused by Opec’s decision not to cut production in the face of increased supply, Brent Crude now stands even lower at around $56 a barrel, a 5 year low.
As The Economist pointed out recently, if the stock market had dropped by a similar amount we’d be talking about a crash.
The effect has been a drop in currencies linked to oil and concerns that prices are now way below the break-even price for many governments of oil producing nations, raising the spectre of political and economic unrest in those countries. The price drop may also be an indication of a slowing global economy as demand has also softened.
On the positive side, a low oil price is historically matched by higher returns from equities. It also acts as a tax cut for western consumers filling up their cars, hence a feel good factor for many. The associated deflationary pressure could make central banks intervene, which would also be positive for equity markets. Opec’s next step will be interesting to watch.
Hamish Douglass, CEO of Magellan Financial Group, gives a very interesting update on the markets which focuses around their recent decision to increase the cash weighting in their Global Fund. They are basically taking some risk off the table whilst still being pretty committed to the equity markets overall as they see good growth coming out of the US. They see several indicators in markets that risks are not being well priced at present. This is in both equity but probably more particularly in credit markets where the interest rates that investors are demanding for risky peripheral European government and high yield corporate bonds, are at very low levels.
The Financial Times looks at why volatility has been so low for so long and what the latest rise in volatility could potentially indicate for markets.
Bernard Doyle, head of JBWere Investment Strategy, presents a high level investment strategy update for investors. For now, they see a US led recovery continuing and remain overweight equities. However they believe that we are now in a low return world, in the late stages of the equity market recovery, and they expect, by the end of this year, to have a more neutral allocation to equities. It also covers global earnings and valuations, stabilisation of world growth, China and Europe and tactical asset allocation. Well worth a watch, click on the image below.
Our Premium Service
Best of class wealth management service built on a solid professional relationship with your adviser to produce bespoke investment advice backed by top quality investment research. The service includes all brokerage costs, custodial services, comprehensive reporting, online access to your portfolio, preferential access to new issues, all based on a very competitive and transparent fee structure.