Taking Stock of a Volatile Global Financial Market

Without doubt, it has been a difficult couple of months for the global financial market, with South Africa also taking a knock. The heated rhetoric between the US and China has been fanning fears of a full-blown trade war – and this has resulted in a correction in the equity markets.

Whilst there is no 100% guarantee that a major trade war will not actually materialise, investors should certainly bear these factors in mind…

  • Corrections are normal in bull markets (the current correction has now lasted for over two months).
  • The US economy continues to be robust and healthy, and this, together with rising earnings estimates, bodes well for shares.
  • US tariffs only become effective in June. Many analysts believe that between now and then, in spite of what they are presenting to the media, with political theatre being the name of the game, negotiators from both sides will try to hammer out a deal.
  • In the meantime, volatility will likely remain quite high. Trump warned investors of this!
  • As with the steel and aluminium tariffs, the final set of tariffs should be a watered-down version of the original proposal.
  • The beneficial effect of the correction in markets is that the exuberance about equities that prevailed in late January has now faded. This is necessary before equities can resume their upward trend.
  • Many analysts’ base case is that another global recession is still about 2 years away -which should keep the global bull market in equities intact.

Source:   BCA Research Stanlib