Investment Report – Market Acrobats

The big story since our last view – Market Acrobats!
Volatility is back and after enjoying several years of benign conditions, foreign exchange, equity and fixed-interest markets have been putting on a performance like the lead act in Cirque du Soleil.

Whilst there was a marked sense of calm within the FinSec community, there is no doubt that the financial acrobats of the past couple of months will have left many feeling a little ‘on guard’.

It was a fairly dramatic ride to say the least, but concerns that stocks were on the brink of collapse was somewhat misguided. After all it’s not unreasonable for markets to be in pull back after a period of sustained momentum.

Add to this the big events of the last 8 weeks; Ebola, Iraq’s deteriorating security situation, Hong Kong’s extended pro-democracy protests and Ukraine’ s stalemate with Russia and it’s fair to say the market reflected the same fear and unrest we have all felt as human beings.

Although the battles are not yet won, recent economic data is a little more optimistic. This week share markets continued to recover even as quantitative easing (QE) ended in the US. What the Fed took away the Bank of Japan added to, announcing a significant increase in its QE program.

Economic news in Europe remains messy and China as always is hard to read – We can never feel completely confident in their data, however it would be dangerous to assume they won’t keep growing. Most thankfully geopolitical risks seem to be fading.

The outlook for markets, what can we expect next?

Having had a decent correction over September and into early October, shares are having a good rebound and are well placed to put on further gains into year-end as the cyclical bull market that started in 2011 remains alive and well.

Valuations – particularly against the reality of low bond yields – are good; monetary policy is set to remain easy with QE in Europe and Japan replacing that in the US and rate hikes in the US and Australia are a long way off.

Investor sentiment remains bearish and cautious, with seemingly everyone worried about global growth and the end of QE, which is positive from a contrarian perspective. Australian shares will benefit from the positive global lead and will also benefit from the lower Australian dollar.

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