AMP Capital is running a higher allocation to cash at present, but the fund manager believes most of the current threats to global equity markets look "manageable" at this stage.
In a report released yesterday titled Correction Time?, AMP head of investment strategy Shane Oliver said the recent volatility in share markets could have further to go.
Australian shares have fallen by six per cent in the past few weeks, eurozone equities are down seven per cent and Chinese shares have shed nine per cent, Mr Oliver said.
US shares have been more resilient, falling less than two per cent.
There are four major factors driving the recent 'wobbles' in share markets, said Mr Oliver.
"First, deflation fears have abated, which is good but it’s pushed up bond yields, after sharp falls earlier this year," Mr Oliver said.
Second, European, Japanese and Chinese share markets were "due for a correction" after very strong gains so far this year, he said.
Third, May is seasonally a "tougher part of the year", according to Mr Oliver, citing the saying 'sell in May and go away, buy again on St Leger's Day'.
Finally, Australian shares have been affected by the perception that the Reserve Bank of Australia may have finished easing the official cash rate, he said.
"Our view is that while shares have rallied a long way from their global financial crisis lows we are still a long way from the peak in the investment cycle.
"Put simply shares are not seeing the sort of conditions that normally precede a new cyclical bearmarket: shares are not unambiguously overvalued, and they are not over loved by investors.
"Uneven and below-trend economic growth is extending the economic expansion cycle, and monetary conditions are likely to remain easy for a while yet," Mr Oliver said.
That said, there is a risk of a short-term correction in bonds and shares and AMP Capital has been a running a higher cash allocation, he said.
But recent moves in global share markets are "healthy" and best viewed as "setting up investment opportunities", Mr Oliver said.