OPINION: Increasingly I have had messages from people concerned with global share markets.
Markets have had a great run, they say, and values are high – surely this can’t continue?
The perception of high valuations and the length of time that we have been in a bull market concerns people the most.
Shares have been going up for eight years and that is a very long bull market by any count.
And so, people tell me that this bull market has gone on too long and won’t continue – we must be ready for a crash.
Most of the people who predict a major market fall neglect to put a time frame on the crash.
This is about as useless as predicting a major flood – predictions of the inevitable have little use if you can’t say when.
This bull market will die eventually. Nothing lives forever.
However, barring unforeseen catastrophe, this bull market does not look like it will die any time soon.
The bull is old, but has no life-threatening illness.
In any event, bull markets do not die of old age. Just like people, they die of something specific.
No one’s death certificate lists the cause of death as “old age”.
And no bull market stops just because it has been going for too long – bull markets die because interest rates have risen, recession strikes or some other explicit economic cause.
At the moment, none of these usual causes of bull market death is on the horizon.
In fact, to the contrary: the global economy is in excellent health.
We hear little of this through the New Zealand media but pretty much every major economy is currently doing very well.
Even those perpetual laggards (such as Japan, Italy, Spain) are growing. There is certainly no sign of global recession right now.
In fact, here is an interesting statistic: there are fewer countries in recession (or forecast to be in recession) than there have been for the last 45 years.
With unemployment low in some countries and falling in most others, these are very sweet times for the global economy.
I do think that interest rates will rise and this could be a threat to an aged bull market.
However, this rise should be fairly small and gradual – most central banks are at pains to signal their moves well in advance and this will make rises tolerable to the markets.
While interest rates stay low, shares should continue to do well. Share valuations may look high on some measures but when we compare the returns investors can get from banks and from bonds with what they get from shares, share prices do not look very stretched at all.
For the moment at least, I think there is life in this old bull yet.
Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. He is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com.