A return to volatility
March 2010
Over the past few months, the financial markets have resumed some of the volatility exhibited throughout early 2009.
Internationally, sovereign debt issues in Europe have kept the market on tender hooks throughout February 2010. Three key factors took the wind out of sails of what was a great nine months to the end of the calendar year 2009:
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The Greek debt crisis, which was the epicentre of worsening sentiment towards the strength and durability of global economic recovery;
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The Chinese government vowing to slow credit growth; and
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Warning from US President Obama that the regulatory changes that are due to emerge over the next couple of months will impact the trading activities of the US investment banks.
In Australia, the Reserve Bank of Australia (RBA) did not raise interest rates in February, voicing its concern for the global recovery. In late February, RBA Board member, Ric Battelino, emphasised the importance of the Chinese economy and that it’s slowed credit growth posed the greatest risk to Australia.
However, Mr Battelino also acknowledged that China’s growth poses the greatest opportunity for Australia over the next decade, suggesting similarities to the great booms of the previous 150 years. RBA Governor Stevens was also optimistic about the local economy and March saw the RBA move the cash rate towards a more neutral level, raising official cash rates by 0.25%.
Such a contrast in sentiment begs the question - where to from here?
The Australian economy continues to outperform many of its peers. Australia appears to have one of the strongest economies in the developed world, with more than 200,000 jobs created in the past six months. In fact, the recent GDP growth suggests that ours is one of the few western economies to emerge from the global financial crisis in good shape.
At Uniting Financial Services, while we are optimistic about growth prospects for Australia, we still have some lingering concerns. Our main concern is that the impact of deteriorating public finances around the world may be more significant upon the global economy than is currently realised.
“The importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood,” El-Erian, Co-Chief Investment Officer at Pacific Investment Management Company recently wrote in an article published on the Financial Times website.
We continue to watch carefully and invest prudently.
Matthew Moore
Portfolio Manager
Past market commentaries
| December 2009 | Is the 'recovery' sustainable? |
| February 2009 | 2008 made history; 2009 makes opportunities |
