by Bruce Boundy*
The keynote speakers at this year’s Morningstar ‘Individual Investor Conference’ believe that the halcyon days of the post-GFC global stock market boom are coming to an end.
The first session of the well-attended conference was moderated by Emma Wall, senior international ‘editor’ at Morningstar, and was entitled “Global Investing in Turbulent Geo-Political times”.
Featuring Vihari Ross, the global portfolio manager for Magellan, Peter Bull, head of equities at Morningstar, and Jay Sivapalan, co-head of fixed interest at Janus Henderson, the consensus was that a heady cocktail of a US-inspired global trade war, rising US interest rates and the growing spectre of inflation could lead to a reduction in global asset prices.
Add to this US president Donald Trump’s fiscal stimulus to the US economy in the form of one of the biggest corporate tax cuts in history – from 35 per cent to 21 per cent – and promises of a US$1.5 trillion expenditure on infrastructure. They have given corporate America a massive sugar hit that has been a strong driver of a buoyant stock market.
It seems that this sugar hit may be somewhat temporary, though, as 37 per cent of the Russell 2000 companies did not make a profit in the last year.
Peter Warnes, Morningstar’s head of equities research, pointed out that the burgeoning global debt was related to the US$15 trillion that has been spent in quantitative easing since the GFC.
He described his view of global markets in “Econ 101” terms relating to supply and demand with the contention that global demand is slowly decreasing.
And that PE ratios of 20+ are also not sustainable.
He believes that companies are headed back to single digit earnings and that Equities and Bonds are on a collision course which Equities will lose.
With respect to Australia, Warnes pointed out that 60 per cent of our economic growth was derived from consumption expenditure. Consumption drove investment – not the other way around- he said.
So, despite historically very low interest rates in Australia and low levels of unemployment our GDP growth rates will ease next year and a period of market turmoil seems to be inevitable.
*Bruce Boundy is director of financial planning at Finch Financial and an industry commentator.