There are a number of signals that suggest the world economy is slowing down with the potential for a deeper correction in equities. Some people are increasingly alarmed at this with some slating the US Fed rate rise as a potential disaster for global growth with its impact on currencies.
I, myself, have been warning that there remain problems in Emerging Markets, that the Eurozone structural issues have not been addressed and of the challenges that increases to interest rates will pose along with the pulling back from QE.
All this is true but I believe at the date of writing (12th January 2016) that the markets are ‘oversold’ and that some people are massively over-reacting.
Take China – concerns over their prospects have certainly stirred things up in the markets since the New Year. I actually believe that China will pick up in the first half of this year, as is suggested by some underlying data on spending and credit growth. Indeed it said recently in The Telegraph that China hit the bottom in June and a recovery has been building since then.
Business surveys are now showing improvements in the Eurozone. US growth did slow last year but the prospects for 2016 seem good. Japan too is showing some modest rise in GDP.
There are some other good indicators, household spending for instance and loose monetary policy, that will further help the world economy grow this year. Low oil prices, while not good for some countries, is overall a positive factor in supporting the consumer and low bond yields continue to make equities look attractive.
I would not suggest that this year is going to be an easy or comfortable ride and I am expecting considerable volatility, particularly in the first half of the year, but I do not believe that anyone need be ‘spooked’.
Times like this call for good basic financial planning, good asset allocation and getting good fund managers looking after pensions and other investments allowing them to get on and do their job. It’s certainly not a time for passive investments or for anyone to panic.