The stock market is rife with uncertainty this year, but bullish elements offer opportunity for savvy investors
The world’s stock market have had an eventful run of late. The sell-off in early February, during which the S&P 500 fell 11.5 per cent from peak to trough, was likely more a correction within a rising market than the start of a sustained downtrend. After such a long and uninterrupted rally, an adjustment like the one experienced is not unheard of – there have been 23 bull market corrections of this nature since 1940.
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However, the worst of market volatility is past and extreme investor positioning has reset. That said, the exceptional Goldilocks environment of 2017 has also likely ended and in its place is a less certain world, one with higher and more variable inflation and tighter central bank policy.
Still, crucial bullish elements remain: economies are growing above trend, interest rates are only rising from low levels and earnings are surging.
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With corporate earnings expected to grow by a rate in the low teens globally, we remain overweight on global equities and advise investors to keep their risk-on stance. Valuations globally and in Asia have become more attractive following the sell-off. This makes for an opportune time to increase exposure to emerging markets, which are supported by strong global growth, rising commodity prices and a falling US dollar.
