Significant market volatility experienced since late August could signal either base building or a pause before another dip to new lows, says AMP Capital.
In an economic update, AMP Capital chief economist, Shane Oliver, said most global markets were dragged lower last week as a result of weak Chinese data and ongoing uncertainty regarding the US Federal Reserve.
“It’s still too early to say that the lows in share markets have been seen,” said Mr Oliver.
“This is particularly so given that worries about global growth and the Fed remain and worries about a US government shutdown might start to impact.”
Mr Oliver indicated that the US congress needs to pass a new budget or extend budget funding by the new US fiscal year that begins on 1 October.
According to Mr Oliver, a stand-off could ensue as Republican's seek to tie budget reform to certain social reforms. However, with an election due next year, Mr Oliver argued that a politically damaging shutdown is unlikely.
While there are notable short-term uncertainties, a pick-up in equity markets is likely to resume.
“Shares are cheap relative to bonds; monetary conditions are set to remain easy; this in turn should help see the global economic recovery continue; and finally investor sentiment is around the levels of pessimism that provides great buying opportunities.
“As such, despite near term uncertainties, developed country share markets are likely to resume a broad rising trend,” he said.
Mr Oliver said the key for investors is to remain focused on long-term investment strategies.
“The key for investors is not to be thrown off well-thought-out long-term investment strategies and to recognise the opportunities that share market falls provide.”
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