Global share markets could be heading for a downward correction, predicts AMP Capital Head of Investment Strategy and Chief Economist, Shane Oliver.
Oliver’s prediction is inline with the view of AMP Capital Head of Dynamic Markets, Nader Naeimi, who also recently highlighted that global equity markets could head south in coming months, particularly if the US Federal Reserve moves aggressively on rates.
“Our view for a while now has been that sharemarkets are due for a bit of a correction, particularly the US, which has been a world outperformer,” says Oliver in his latest Market Watch video.
“We have had good gains, particularly in global share markets to date. The trouble is markets have been a bit overbought and are probably due a bit of a pause,” he says.
“Particularly the US share market, which has been a world outperformer,” Oliver points out.
Since 2013 the largest global index, the S&P500, has risen more than 43 per cent during a period when central banks have kept interest rates at historically low levels and asset prices have benefited from easy monetary policy under quantitative easing programs.
While Oliver admits it’s difficult to predict trigger points for a possible correction, he points to the ongoing tension between North Korea and the US, as well as general uncertainty around President Trump.
Though one factor that had been unsettling the US economy – the need to raise the debt ceiling within the next two months – is less likely to be an issue due to the extra money required following Hurricane Harvey.
Overall, any correction is likely to be short-term, Oliver predicts, due to the strong global underlying economic conditions.
While a correction remains likely, Oliver points out that monetary policy remains easy globally and economic growth continues to tick up – both factors are good for shares in the longer term.
“So yes, there is certainly a risk of a correction, share markets could come off in the short term, but the broad trend is likely to remain up.”
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