Are Global Equities Running Out of Steam?

Are Global Equities Running Out of Steam?


Platinum Presentation to Saturn Clients, 1 August 2018

By Peter Dine, General Manager


There is no shortage of people trying to predict the down turn of stock markets. A quick google search is a testament to this.  Furthermore when it comes to financial markets, the media is adept at sensationalising the mundane to sell stories. In media speak, markets plummet rather than fall and they soar rather than rise, even if by only a percent or two. It’s often hard to tell fact from fiction or to differentiate hyperbole from humdrum in a world inundated with data including “fake news”.

This month we had Douglas Isles from Platinum Asset Management present to a select group of clients on whether or not global equities are running out of steam. Here are a few take outs from the presentation.

  • It has been an extraordinary decade for global equities with very strong performance from US markets but far more muted performance from the rest of the world with a few exceptions including godzone. As the chart shows it is not always helpful to view the world as a single market. world,
  • Bear markets (typically characterised by a 20% drop in share markets) occur where there is a combination of excessive valuations and an economic slowdown. These conditions do not exist in much of the world at present.
  • Although US markets are currently expensive relative to longer term averages, this is not the case for much of the world including Western Europe, Japan and the rest of Asia.
  • There is significant potential for a rebound of corporate earnings in Europe which is enjoying its highest business and consumer confidence in more than a decade.
  • Japanese corporate profits are growing strongly but this has not been fully reflected in share prices….yet.
  • China’s recovery is not a debt fuelled boom (“fake news?”) and can be characterised by innovation and dynamism.
  • Platinum’s response has been to progressively reposition its International (Share) Fund by investing more in the Asia Pacific region and Europe at the expense of the US.

So are global equities running out of steam? The answer is no with the caveat that the US has had a very strong run which makes it harder to continue delivering good returns relative to other regions.

Note that corrections (as opposed to bear markets) where share markets drop by around 10% are quite normal and markets typically recover within a few months.

As always, we recommend that investors take professional advice before making financial decisions and Saturn’s Authorised Financial Advisors are here to help.