Observers of financial markets may wonder sometimes just why and how markets gyrate with such gusto, often with little regard to the underlying economic reality. Over the last 2 weeks both local and global markets have experienced extraordinary market volatility, which inevitably makes most investors nervous. I have mentioned that the US market indices are looking weak, despite their rally over the last couple of days.

Some market advisors continue to maintain full weighting into global equities. A report from US based Fisher Investments, who remained bullish throughout 2003, headlines "More Ahead- The Bull's not Dead"

Other such as bond managers, US based Pimco's Bill Gross assert quite rightly that "? cheap money is primarily responsible for today's economic recovery and accelerating inflation, not just in the US, but worldwide. When it goes away, however, we may tip the other way, especially if central banks go too far to the upside, pop too many bubbles (housing, stocks, bonds) and precipitate the liquidity trap that Greenspan has feared for years."

Local share markets have experienced good gains over the last 12 months, but this is likely to come against global headwinds. I still believe that investors should retain exposure, but possibly with a more flexible approach, so as to protect downside risk to capital.

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Posted: 2004/05/20 17:25 View Archive

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