Stock markets posted decent rallies since late last year. The Shanghai Composite Index has soared 30 percent, making it the best-performing market. In the US, the S&P 500 is just 2 percent away from its historical peak level. Some investors and analysts are getting increasingly bullish and are eagerly waiting for the next round of bull cycle.
News such as progress in US-China trade talks, massive capital inflow into emerging markets and the Fed’s dovish stance helped support the recent rally.
But all these positive factors have more or less been already priced in. The markets now need fresh catalysts before they can surge further.
Let’s not forget, although the US-China trade talks have headed in the right direction, even if a deal if finally achieved, there are still uncertainties in relation to its implementation.
Economic slowdown and poor corporate earnings outlook were key factors that dragged global stocks last year. Trade tensions might have played a part in that, but it was not the key.
Global economy may not necessarily regain growth momentum even if Washington and Beijing strike a deal.
Meanwhile indicators like South Korean exports, referred to as the world’s economic canary in the coal mine, continued to fall, reflecting economic downturn pressure.
The leading economic data monitored by OECD continues to slip. Corporate earnings growth moderation trend has yet to reverse.
As such, fresh impetus to take global equities significantly higher seems to be absent.
If major central banks embark on quantitative easing again, that could boost the stock markets tremendously.
But global economies are just moderating, not problematic enough to warrant the use of such aggressive approach.
This article appeared in the Hong Kong Economic Journal on April 11
Translation by Julie Zhu
[Chinese version 中文版]
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