SQM Research’s 2016 Equities Sector Review pointed to “universally poor” returns over the past year, with all markets except global small caps reporting significantly negative returns.
Head of research at SQM, Rob da Silva, said the equities markets were more susceptible to market risk than they have been in recent years.
“Now that markets have evolved from post-GFC ‘bargain of a lifetime’ levels to being arguably fully priced or very expensive, the price action is now more in tune with underlying economic developments,” he said.
Mr da Silva said the new price action is likely to be “unpredictable, erratic, volatile, and lacking in strong forward momentum” now they are in tune with other economic circumstances.
The report said equity market returns are being driven by expanding price/earnings ratio valuations, weak global growth, increased sensitivity to risk and lower central bank policy rates.
“Now that the low-hanging fruit has been picked, markets actually react sharply to the swings and roundabouts of these risks as they develop through time,” Mr da Silva said.
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