Wed, Jan 09, 2019 - Page 12 News List

Misplaced fears caused market slump: strategist

By Kao Shih-ching  /  Staff reporter

Misplaced concern about a global economic recession triggered large-scale sell-offs around the world last month, but that should not be the case this year, as the global economy is expected to grow at 3.2 percent, HSBC Global Asset Management Ltd said yesterday.

Some investors have blamed a US-China trade dispute or the US Federal Reserve’s plan to hike interest rates for last month’s stock market rout, but they could not be right, as those factors have existed for a while, HSBC global chief strategist Joseph Little told a news conference in Taipei.

Investors’ worries about rising risks threatening a global recession caused the sell-offs, Little said, adding that psychological factors have inflicted greater damage on equity markets in developed nations than in developing nations.

Almost every kind of asset portfolio reported negative returns last year, reversing high returns in 2017, the strategist said.

Equities in emerging markets reported returns of more than 30 percent in 2017, the highest among all investments, while last year, returns slumped to minus-10 percent, Little said, adding that bonds, private equities and gold also drifted into the red.

If investors stop worrying about a slowdown, stock markets would pick up this year, he said.

As the global economy is forecast to grow 3.2 percent this year fueled by China and the US, there is a slim chance that the world’s exchanges would move toward bear markets, despite some equity markets considering a plunge of more than 20 percent as a bear market, he said.

However, investors should still monitor key indicators, including inflation, which is remaining stable, as an inflation forecast might lead to sell-offs in bonds and equities, Little said.

Investors should also keep an eye on US-China trade tensions, as any deterioration would weigh on global growth and dampen stock market sentiment, Little added.

There are positive factors that would keep the world economy and stock markets in check, including wage growth in the US, which would stimulate consumer spending, he said.

In emerging markets, rebounds in GDP growth and improving corporate profits would also have positive effects on stock market performance, he added.

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