World Markets at All Time Highs
Up, up and away! What can stop stock market mania?
Global equity markets have hit a new all time high. The MSCI All-World stocks index hit 493.25 points today. The index, which is designed to provide a measure of stock market performance across the globe, covers more than 2400 companies across 23 developed and 24 emerging markets.
Spanish indices rallied sharply at the open thanks to news that Catalonia’s President Carles Puigdemont pledged to negotiate with the Spanish government and suspend the independence move. This may only be a temporary measure and the situation is still volatile from an investor perspective, however that hasn’t stopped a strong sense of relief pervading markets.
On the other side of the world a key Japanese index smashed a 21-year high. The Nikkei 225 peaked above 20,881.27, following a stellar performance over the past month (nearly 10% gain). However, given the tensions over North Korea and the now deepening Kobe Steel saga, the rally will definitely come as a surprise to many investors. Interestingly, the Nikkei’s alltime peak was over 38,000 points back in December 1989. Someone who bought Japanese shares back then may still be waiting to break even on their investments!
Elsewhere the IMF released its Global Financial Stability Report, which highlights potential points of instability in the global economy. Amongst the findings, the IMF warned ‘good times’ in the global economy mask longer-term risks including massive debt piles globally.
They said a period of strong economic growth for many nations across the world in the last few years could be breeding ‘complacency’ that may encourage more risk taking behaviour which could potentially lead to another financial crisis, though the organisation thinks it would be only 1/3rd as severe as the 2008 crash.
Make no mistake, the world’s economy is in a far better state than it was 5-10 years ago, thanks to stimulus measures of central banks, mainly. What comes next is anyones guess however, as interest rates rise, the ECB and Federal Reserve withdraw their stimulus programmes and the Trump administration tries to push a new tax plan through congress and continues to implement its ‘America first’ policies, much to the chagrin of other nations.
There are plenty of warning signs that should be taken seriously in regards to the outlook for the world economy. In Europe I have repeatedly observed a seemingly petty and vindictive negotiating stance from the EU towards the UK over Brexit, compounded by a weak and ineffectual conservative leader who doesn’t fully back the leave vote. Then we have the North Korean situation, which I need not elaborate on. To top things off, we have Trump’s needlessly inflammatory views on everything from global trade to the idea of war in the pacific. Trump’s insistence on building up an American military which is already arguably the most powerful in the world threatens peace, and given that during the election campaign he denounced Hilary Clinton as a trigger-happy warmonger, he now looks like a maniacal hypocrite, especially given his seeming willingness to start a war with North Korea. The tension between China and the US in the South China Sea has not abated, and despite the fact Trump claims to have great respect for President Xi Jinping, his relationships with other world leaders have been known to quickly turn sour. Any economic or (god forbid) military conflict between China and the US could end in catastrophe.
However it’s not all doom and gloom. Companies across the world are still innovating, driving equity indices to new record highs and exciting investors. We are moving towards broad adoption of autonomous vehicles, amazing new advancements in A.I technologies and so much more. In conclusion, yes, market conditions look better, but scratch beneath the surface and you will find there is still plenty of risks.
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