While the correction has eased valuation concerns, it hasn’t been enough to really correct growing risk in the market. Three key issues weighing on markets are that:
- share valuations continue to look expensive particularly in the US
- the US fiscal deficit has widened sharply despite the economy being fully employed and growing well above potential
- policy measures such as steel and aluminium tariffs will likely add to cost pressures and heighten policy uncertainty.
And these risks are adding to inflation pressures. Strong global economic growth is already leading the world’s central banks to possibly more rapidly reduce economic stimulatory measures and recent policy moves are adding impetus to this trend.
ANZ investment strategy – March
It’s from the view outlined above that we form our investment strategy, which is underpinned this month by two central observations, that:
- growth remains above trend (with most major economies continuing to perform well)
- we have entered a period where rates can be expected to rise as central banks start to remove extreme policy support.