Bumpy start to new year in sharemarket with same worries
2016 has started much where 2015 left off with basically the same worries driving another bout of sharemarket falls. Geopolitical concerns have played a role, notably an intensification of tensions between Saudi Arabia and Iran along with a claimed H bomb test in North Korea.
However the main issues are uncertainty regarding the Chinese economy, with declines in the Chinese share market and currency sparking renewed concerns about the Chinese economy, not helped by some soft manufacturing data in the US.
While risks remain high in the short term there are several reasons not to be too concerned.
The latest fall in Chinese shares arguably tells us more about regulatory issues and fears around the share market and currency rather than much about the economy. Recent economic data out of China has been mixed rather than outright negative
In addition a US recession is unlikely. We have seen none of the excesses that precede recessions - like excessive growth in private debt over investment in housing or capital goods, high inflation or a speculative bubble. There is also strong jobs data which is serving to keep consumer spending firing even though the strong $US has damped US manufacturing.
Also, the combination of okay economic data in China and the US along with good Eurozone indicators lately indicate the global economy is unlikely to plunge into recession.
The current dynamic is very different, to say the GFC, as lower oil prices and commodity prices are providing a huge boost to consumers and most businesses.
Monetary policy remains ultra-easy. The Fed is very unlikely to undertake the four rate hikes it's signalling for this year and other countries are still easing.
In Australia, the latest bout of global growth worries has its impact: ongoing commodity price weakness means ongoing pressure on our budget deficit, points to more downwards pressure on the $A, and more pressure on the RBA to cut interest rates again.
Disclaimer: For more Information contact Tim Maher at Maher Digby Securities Pty Ltd - Financial Advisers - AFSL No. 230559 (see advert Page 3). Ph: 07 5441 1266 or visit our website http://www.maherdigby.com.au This document was prepared without taking into account any person's particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such. Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial advisor.