Market update - February 2011
At the moment, authorities in the US are keen to ensure the recovery stays on track at all costs so they are continuing to pump liquidity in the system. In addition, Chinese credit growth remains strong. This is all supportive for global equities in developed markets over the next six months or so, particularly as valuations are quite attractive. These themes play out in the Australian market most obviously in the resource related sectors and in cyclical companies that are exposed to the US recovery.
As always though, there are risks. The spectre of inflation looms, which could lead to more aggressive policy tightening in the emerging economies and a slowdown in the pace of growth, with repercussions for our local resource sector in the near term. Equally, the US recovery could falter on the back of the stimulus being removed too soon. Domestically, the breadth and pace of further monetary tightening is likely to influence the retail sector in particular.