2 Comments 2 Commentsby Susan Edmunds
Bernie Doyle, head of JB Were’s investment strategy group, spoke at a series of global equity investment briefings held by The Investment Store this week.
He said investors were becoming more confident about the drivers of global growth.
Using the ACWI ETF as an indicator, he said global equities had only had one day this year when they had declined more than 1%, compared to 18 at the same time last year.
The drivers of growth were now less reliant on central bank and government processes. “A far more normal cycle is starting to unfold.”
Interest rates had come off historical lows and he said there was more room for them to lift. “Wage growth will play a role in dragging interest rates higher.”
But he said the bull market had been considered “aging” for the past three years. The tech bubble was the only post-war bull that lasted longer.
“The bull market is eight years old. It started to feel old at five.”
Doyle said the most likely way the bull market would end would be the Federal Reserve sucking the momentum out. “I hope they do it gradually.”
It would end sooner if there was a run of strong inflation that forced the Fed’s hand, he said.
Despite concerns about international uncertainty, he said it was unlikely that geopolitcal factors would knock the market off course. “The hurdle for geopolitics to change what’s going on in an economic cycle is very, very high.”
Greg Fleming, AMP Capital head of investment strategy, said it was likely to be 2019 before the bull market ended.
He said indicators of a coming change would include corporate credit spreads widening and share buy-backs underperforming. Six months of market euphoria or US bond yields going beyond 3% might also indicate a peak, he said.
Fleming said there were still good opportunities in global equities, particularly in stocks that were growth oriented or positively exposed to the effects of inflation. “A lot of equities are still good value - relative to history perhaps not, but relative to bonds they are good value. We are watching the warning signs but there is no cause for concern.”
He said just because the bull market was old, it did not mean it was tired.
It could still be extended by factors such as expected shocks not occurring or the Federal Reserve backing away from rate hikes.
“We don’t see a compelling case for significant changes to our current investment strategies, which have been proving successful. We are maintaining our over-weight to global equities though our portfolio positioning is now slightly more defensive due to lowering the allocations to property and commodities, which we consider the most vulnerable asset classes at present,” he said.
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