The state of play in markets
As markets have now enjoyed strong performance over the last 12 months, and appear to be pricing in much of the good news, we thought that now would be a good time to report on the state of play in markets. We look at the factors that are likely to influence the investment environment both globally and domestically over the next six to 12 months, and rate these on a scale of one to 10, where one represents the lowest score in terms of providing support, and 10 is the highest score.
There’s no sign of a recession, but growth is tepid
The global economy continues to recover from the global financial crisis (GFC), and for the first time in many years, all major economies are growing in unison. In addition to this, we are also seeing unemployment fall across the globe and manufacturing expand almost universally. Overall, no developed economy is showing signs of a recession. This is a positive for investors as bull markets rarely end without a recession.
This upbeat economic story, however, is tempered by two major issues. Firstly, although the major economies are growing in unison, growth is tepid and below long-term trend rates. Secondly, wage growth across most of the world is relatively stagnant and this is pressuring consumers and crimping spending. Real wage growth, which takes inflation into consideration, is close to zero across most developed economies, and negative in some, such as the UK. This is leading to a decline in living standards.
In many ways, Australia is a poster child of what’s happening globally, with headline growth looking ‘OK’ due to export volumes, immigration, tourism, housing construction and government spending. However, with such strong tailwinds, the economy should arguably be growing much faster. The problem is that costs are increasing for transportation, healthcare, energy, insurance, education and mortgage funding, while wage growth is weak. This impacts the consumer in a major way, and is easily identifiable via the divergence between booming business confidence and slumping consumer confidence data.
Our ratings—Global 7.5 / Domestic 6.5
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