For investors, financial markets were excellent in the third quarter. Buoyant global markets pushed up the Johannesburg JSE. This happened even as conditions continued to remain choppy. Stimulus is being provided by high share valuations, central banks, and geopolitical tensions. There are concerns that the markets are getting overheated. There is a chance that there will be a correction.
Rian le Roux, a strategist working for Old Mutual Investment Group, said that the global equity markets enjoyed an excellent run in September. The United States Standard & Poor Index went up 1.9 percent. The month saw the markets close at record levels. Even better was the performance of German DAX. The latter went up 6.5 percent. This action completely reversed a similar decline which the market suffered in July and August.
Roux holds the opinion that such an excellent performance happened despite multiple developments which would generally increase investor concerns. The list of such detracting circumstances includes peak tensions between North Korea and the United States. Many central banks also upped their interest rates. China also showed signals of its economic slowdown. To make sense of the upbeat numbers, the strategist said that there is a rise in confidence when it comes to the global economic recovery.
It also helped that many investors saw the willingness of central banks to push policy normalization. They took it as a sign of increasing confidence that global recovery has now become self-sustaining. The third reason, as per Roux, is that the United States is back to starting the tax reform and the much awaited fiscal stimulus. He warned that investors must not lose sight of the accompanying risks. This has much to do with the fiscal tightening steps of the central banks.
The coming few months will show whether markets have included the excess of good news. Unless that happens, investors continue to remain positive on the world economic outlook. Not much is happening to derail such an outlook. Other analysts are quite aware of the situation. Nick Curtin of Ford Asset Management said that there are increasing distortions and mounting risks. The latter is a result of 10 years' post-crisis experimental policy on monetary affairs. The interest rates continue to be down. The balance sheets of central banks continue to be abnormally swollen. The debt problem which stutters the world still remains.