Where are we in the global investment cycle?
In this video, Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital asserts that where we are in the global investment cycle is critically important.
Global monetary conditions remain easy and in the absence of broad based excess (in growth, debt, or inflation) look likely to remain accommodative. The US Federal Reserve (Fed) is likely to hike rates more aggressively this year but it’s still from a very easy base and other central banks (including the Reserve Bank of Australia) are either on hold or easing. Therefore, a shift to tight money that brings an end to the economic cycle looks a fair way off.
While short-term investor sentiment is excessively bullish, long term measures of positioning are not. In the US, the large investor flows into bond funds over the past few years have yet to reverse in favour of shares. Overall, we are still not seeing the signs of excess, euphoria and exhaustion that typically come at cyclical economic and sharemarket peaks. Barring some sort of external shock, the cyclical bull market in shares looks like it still has further to go – particularly if global economic growth returns to more normal levels which in turn will help earnings.
Outlook for Australia
In Australia, we expect continued strength in business conditions with gross domestic product (GDP) growth averaging around 3% over the next few years. Sentiment towards shares as a wise destination for savings remains low and investors still prefer bank deposits.
National residential property price gains are expected to slow to around 3-4% this year, as the heat comes out of Sydney and Melbourne and rising apartment supply hits. Commercial property and infrastructure are likely to continue benefitting from the ongoing search for yield, but this demand may wane over the longer term as bond yields trend higher.
What does this mean for investors?
While market corrections should be anticipated – with US President Trump and upcoming Eurozone elections being potential triggers – we still appear to be a long way from the peak in the investment cycle.
About the author
Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital, is responsible for AMP Capital's diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.
Access up to 80 global opportunities in a single trade
In a world where market volatility and low growth are the new norm, asset allocation is more important than ever. However accessing asset classes globally and outside of the usual places in order to do this is difficult.
AMP Capital’s Dynamic Markets Fund (Hedge Fund) ASX Code: DMKT, an exchange traded managed fund, offers a low cost solution to global portfolio diversification with a real return objective.
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) makes no representation or warranty 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 article 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 article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.