In this edition:


Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital

Global share markets in developed economies have continued to drift higher this year with the US up 4.1%, European share market up 4.7% and Australia up 2.6% as at end of May. 
Underneath the modest rise in share markets there has been a bit of a ‘stealth correction’ as while the overall indices have risen there has been much churning at a sectoral level. For example the recent fall in many of the US technology stocks. 
 
In 2013 the gap in relative performance between some segments of the market was remarkably wide. The segments of the market that ran up fast last year have generally stopped being the leaders in 2014. 
 
This is largely due to relative outperformers becoming stretched and expensive which has resulted in a rotation to other segments of the market rather than an observation that that the outlook for the broader economy needs to be reassessed. 
 
While a correction may occur in the next few months – after all the last four years have each seen mid-year falls in share markets - the overall trend in share markets is likely to remain up for the year.
Any uncomfortable dips in share markets should be considered a buying opportunity as the fundamentals supporting share prices are positive. 

In China, targeted policy easing has picked up in recent months. This follows the slowdown in growth seen in the first quarter, and provides confidence that the Chinese authorities will ensure growth comes in around its target for this year of around 7.5%.

This is a positive given some investor concerns persist surrounding slowing growth, particularly around the slowing in the housing sector. The targeted measures include redeveloping urban shanty towns (estimated US$ 162 billion in spending) and speeding up infrastructure spending on the construction of railways, expressways and airports to support the country’s rapid urbanization along with various measures to ease monetary conditions.

The importance of such measures has been underlined by Premier Li Keqiang stating that downside risks to the economy should be taken seriously and that policies should be fine-tuned appropriately. This means that, if required, more easing measures supporting growth are likely.
 
Meanwhile the US appears to be picking up from its partly winter weather affected March quarter slowdown and the recovery in Europe is continued albeit gradually, which has prompted the European Central Bank to provide more monetary stimulus.  
Global earnings are well placed to improve on the back of rising economic growth, share market fundamentals remain favourable with reasonable valuations and monetary conditions are set to remain easy for some time.

All this adds up to a positive backdrop for shares and broader economic trends.
Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.