We attend the Chief Economist Forum each year to hear the industry experts. As we were hearing from the gurus in our industry, notifications of the US market having a significant fall were arriving on our phones, as we all had expected they would.
The US market has been volatile since January 29th, with the drop of 4.6% on Monday 5th, erasing the gains for the year so far, before an upswing on Tuesday 6th bringing the Dow Jones back to positive territory for 2018 year-to-date.
Other global markets including the ASX have followed suit, mirroring the pattern of down and up swings.
While media reporting has been dramatic, it has been a moderate drop compared to other single-day drops.
The US market has been running very strongly through 2017, with the Dow Jones Index reaching a new high of 26,616 26th January, before drops in early February to close at 24,912 on 6th February, including a 2.3% upswing on the 6th after the 4.6% drop on Monday 5th.
Don't worry, we have pre-positioned your portfolios for sustainability, and for some of our clients there will be buying opportunities directly and indirectly through super contributions, drop-feeding investments and similar opportunities.
Theme of the Forum - Is this as good as it gets?
The esteemed panellists addressed in varying degrees some of the big questions raised about the outlook of the global markets in 2018.
- Bab Baur, Chief Global Economist, Principal Investments
- Jeremy Lawson, Chief Economist, Aberdeen Standard Investments
- Mark Tinker, Head of Framlington Equities, Asia, AXA Investment Managers
- Sally Auld, Chief Economist/Head of Fixed Income/FX Strategy, JP Morgan
- Roger Aliaga-Diaz, Chief Economist, Americas, Vanguard.
- MC : Saul Eslake, Australian Independent economist, Vice-Chancellor's Fellow at the University of Tasmania.
Our take outs: -
- Upbeat on returns and outlook for 2018.
- Synchronized Global growth expected, with a target of 2-3%, with company earnings expected to be good, cyclical recovery to continue, no real excesses in the world. So most economist of the large funds management groups are overweight equities in their portfolios.
- Some deceleration this year - we'll see a series of rallies and correlations because of increasing rates – volatility rather than down-turn.
- Tax reform will boost growth in US.
- Interest rates will go up (if interest go up too fast, potential for correction in stock markets, particularly USA).
- Strong economic growth in the US is a reason for the USD weakening. Given the domestic fundamentals the The AUD is high & is likely to come off to 0.75.
- Australia will have modest returns and will lag global returns.
- S&P had its second biggest return in 50 years, hence growing speculation some volatility has been expected.
- China grew more than Australia last year.
Differences between Economists
Some emphasizing Europe 3% growth…some pivoting toward Asia (decoupled from rest of the world) specifically china 6-7% growth (increase in industrial robots 90,000...compared to rest of world) with 375 million middle class involved in consumer spending.
China's debt doesn't seem to be too much of a concern as they are buying assets with the debt, particularly outside the country, rather than internal lending or debt recycling - very different way to achieve fiscal reform through de-leveraging.