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The correction in global equity markets in late February, triggered by the sharp drop in the Shanghai index, proved to be short-lived. The fall in Chinese stock prices had raised fears that the previous strength – either in China’s economy or world equity markets – could not be sustained. However, markets steadied and then strengthened during March as investors became more confident that the February wobbles were neither an indicator of an imminent slowdown in China’s economy nor that equity valuations were stretched. Overall for March, the global developed share market index rebounded 1.3%. Apart from Japan’s Nikkei index (which fell 1.8%), all major indices increased with the United States S&P 500 up 1.0%, the European Stoxx up 3.0% and the Australian ASX 300 up 3.3%. Even the Shanghai index had regained all of February’s falls by the end of March. Equity markets have been benefiting from an impressive run of strong economic growth in virtually all regions of the globe. Inflation has been low and relatively stable throughout the developed world and in most emerging and developing economies, and this has translated into historically low interest rates. Consequently, the prospects for further economic growth – and in turn, increases in corporate earnings and thus share prices – remain favourable. Also, merger and acquisition activity in both Australia and many overseas markets has been supporting the share market. The low inflation has also allowed central banks to adopt a steady hand with monetary policy. Official interest rates have been stable or increasing very gradually in all major centres. The European Central Bank was the only major bank to raise rates in March. The RBA Assistant Governor, Malcolm Edey, made it clear in a speech in March that the RBA maintained its tightening bias, but as it showed by not raising rates at the start of April, any changes in interest rates in coming months are likely to be modest. Perhaps the highlight for March was the strength in the currency. A number of factors combined to push the Australian dollar through the 80 US cents mark including:
The increase in commodity prices resulted from renewed geopolitical pressures (notably, the tensions surrounding Iran’s nuclear capacity escalated this month following the capture of British naval personnel), continued strong demand, some production difficulties and, for metals, very low inventory levels. The geopolitical pressures saw oil prices jump 6½%, but this was exceeded by the rise in base metal prices of over 10%. As a consequence, over March, the Australian dollar appreciated by 2.7% against the US dollar and by 2.0% on a trade-weighted basis. It continued to climb in early April. Source: Access Capital Advisers Pty.Ltd This article provides general information only and may not be relied on as legal or financial advice. |
