Amid steady growth, relative market stability and low rates, the global economy has been described as going through a “Goldilocks” phase, which refers to an economic environment that is not too cold, but not too hot – it’s just right.
A number of factors have come in to play to create such an environment, the greatest of which being the synchronised global growth being experienced recently. The US is expected to continue with its rate increases, Japan has been keeping a low profile but appears to be doing very well with Abenomics, while the powerhouse economies of emerging markets – China and India – continue to flourish.
Speaking about the dynamics at play from an investment perspective, Andrew Dittberner, Chief Investment Officer at Old Mutual Wealth, Private Client Securities, says that the global synchronised growth that we have been witness to over the past couple of years has resulted in a tailwind for corporate earnings. This ultimately then plays itself out in global equity markets. The net result is an environment that feels like nothing can go wrong.
“It is at times like this that one ought to be weary. A cocktail of low interest rates, strong earnings growth, inflated asset prices due to quantitative easing and record low volatility, appears to be resulting in an element of complacency setting in amongst global investors.”
Dittberner concludes that while the current macroeconomic environment is supportive of equity markets, one must not throw caution to the wind and believe that the music will continue to play forever.