From bear to bull - the cyclical upswing in shares
By Dr Shane Oliver, Chief Economist and Head of Investment Strategy for AMP Capital Investors. Many investors have asked us whether we have entered a bull market, we show why there is good reason to believe that shares have embarked on a cyclical recovery.
Key points
- The evidence is continuing to accumulate that shares have embarked on a cyclical recovery.
- Further gains are likely: shares are cheap and the economic recovery will lead to an improvement in the profit outlook. There are still plenty of funds sitting on the sidelines and there is still a lot of healthy scepticism about the rally which is normally a good sign.
- Past cyclical upswings have seen New Zealand shares rise an average of 147% (adjusted for inflation) over an average of four years.
After undergoing a bout of nervousness from mid June into mid July, shares have since surged higher on better than expected economic indicators and a better than expected US profit reporting season. Further gains look likely. While we are of the view that the secular or long term picture for US, European and Japanese shares is constrained by high debt levels and the need to reverse policy stimulus, the longer term picture is far more positive in emerging markets. Also, as we saw during the 1970s in the US or over the last 20 years in Japan, a constrained or difficult long term trend doesn't prevent sharp cyclical rebounds. This is what we have likely entered now.
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