If it’s just a (severe) correction are we at/near the bottom?
This is impossible to know with certainty in advance. Our view remains that further falls and volatility in next few months could occur as worries regarding China and emerging markets linger, concerns about whether the Fed will raise interest rates soon will remain and seasonal weakness continues into September/October. However, there are some positive signs: After sharp falls in share markets and falls in bond yields share valuations have become quite attractive. Our valuation measures for global and Australian shares have fallen back into very cheap territory. Investor confidence has rapidly collapsed as evident by all the talk of global calamity. In fact a measure of investor sentiment based on various surveys and indicators of fear that we track has fallen to levels often associated with market bottoms. China has provided additional monetary stimulus which may help provide a circuit breaker to the negative feedback loop. Significantly more easing is still required with real interest rates still too high and the banks’ required reserve ratio also too high. But at least they are going in the right direction.(VIEW LINK)