Oliver's Insights - The return of gloom
24 May 2010 - This note looks at the renewed panic in financial markets over the last few weeks.
The key takeouts are:
- Share markets and other listed growth assets have fallen sharply on the back of European public debt worries, regulatory action against the US and European banks and worries about Chinese tightening. The impact on Australian shares and the Australian dollar has been magnified by concerns around the planned Resource Super Profits Tax.
- It's too early to say the falls are over, but we see it as part of a correction - albeit a severe one - rather than the start of a new bear market in global shares. The global recovery is likely to remain on track, the profit outlook is positive, monetary conditions are very easy, China is likely getting closer to easing up on its tightening measures and shares are now very cheap again.
- What to watch in case we are wrong: credit and money market spreads, global business conditions indicators and any signs that 'bond vigilantes' are starting to push up the bond yields of high public debt countries like the US and UK.
