8
Whether it was the potential impact of
Ebola, fears of Chinese and Japanese
slowdown or a re-emergence of
Eurozone woes, there have been
plenty of reasons to be sceptical that
the good times are truly here again.
And while the fall in inflation at
home to 1.2% is welcome by some
(it certainly delays the increase
in interest rates), a worry for
policymakers in Europe is one of
deflation; falling prices.
That is a dangerous place for an
economy to find itself since a spiral can
set in which it can slow it right down.
The response is in policymakers hands
of course: the long quantitative easing
experiment has pumped billions of
dollars into the global economy and is
essentially an inflationary action.
Indeed the ECB has begun buying
covered bonds to stimulate growth.
However, some sceptics, including
legendary investor Jim Rogers, have
warned that the eventual end of QE
also means an end to the ‘propping up’
of economies by Central Banks and
that needs to be reflected in share
valuations.
The big question is whether it has all
been a ‘correction and overreaction’
as IMF Chief Christine Legarde would
have us believe.
Time will tell but there has been
some encouraging data to emerge
from the USA which has begun to
assuage markets. The earnings season
has been pretty reasonable and US
consumer sentiment remains buoyant.
‘THE BIG QUESTION IS WHETHER
IT HAS ALL BEEN A ‘CORRECTION
AND OVERREACTION’ AS IMF CHIEF
CHRISTINE LEGARDE WOULD HAVE US
BELIEVE. TIME WILL TELL BUT THERE
HAS BEEN SOME ENCOURAGING DATA
TO EMERGE FROM THE USA WHICH HAS
BEGUN TO ASSUAGE MARKETS. THE
EARNINGS SEASON HAS BEEN PRETTY
REASONABLE AND US CONSUMER
SENTIMENT REMAINS BUOYANT.’
For investors this means careful
stock selection and seeking sectors
which offer value. After the recent
rollacoster ride, there are plenty of
markets discounted from their all-time
highs. But take care, the next storm
cloud could be just over the horizon.
