Markets set for short-term volatility as trade war heats up
While the escalating trade war between the US and China likely to see some further short-term volatility, sharemarket gains on a six- to 12-month horizon are still expected to be decent, says an economist.
AMP Capital chief economist Shane Oliver said there are a number of threats which have led to a correction in the Australian sharemarket including the trade war between the US and China, Middle East tensions and mixed economic data.
Rather than moving closer to a resolution, the trade war between the US and China has escalated further, Mr Oliver said, with the US imposing more tariffs on China and China responding by allowing its currency, the renminbi, to fall below seven to the US dollar and reportedly ordering state-owned enterprises to halt imports of agricultural products from the US.
“These tit-for-tat reactions pose a threat to the global outlook and that has triggered a pullback in sharemarkets and we could see them fall further,” he said.
Mr Oliver also noted that sharemarkets are seasonally weak through the August and October period, which could mean further downside in sharemarkets in the short term.
Over the medium term, however, investors can still expect decent returns, he said.
“Ultimately, I do think common sense will prevail and some sort of deal will be worked out between the US and China, simply because if they don’t strike a deal, it could damage President Trump’s re-election chances next year if the US economy gets weaker and weaker,” he said.
“When that occurs — and given more help for the US economy and the global economy from central bank interest rate easing — then that should help sharemarkets recover.”
Valuations for shares remain okay, he added, particularly when compared against low bond yields.
“Global growth indicators are expected to improve by next year and monetary and fiscal policy are becoming more supportive, all of which should support decent gains for sharemarkets on a six- to 12-month horizon,” he said.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.