In a note to investors on Friday, Perpetual global portfolio manager Garry Laurence said that while the fundamentals of the US economy are looking “reasonable", volatility in equity markets has increased significantly in 2016.
The “significant” fall in equity markets at the beginning of the year was puzzling to Mr Laurence given the seeming strength of the US economy.
“Equity markets aren't always a good predictor or indicator of corporate profits but more a gauge of investor sentiment and are driven by pools of money going in and out of them,” he said.
“The fears around China, energy prices, its impact on the banks and global manufacturing peaked on February 11 with global equities falling 11.3 per cent in those first six weeks of the year.
“Since then, global companies have reported their quarterly results for the end of the last quarter of 2015 and I am pleased to say that earnings for the companies that we own, on average, were reasonably solid,” Mr Laurence said.
Overall, global equity markets were “pretty flat” by the end of the first quarter of 2016, he added.
“Unfortunately for Australian investors, our returns were affected by the recent rise in the Australian dollar (AUD) relative to other currencies,” Mr Laurence said.
“While the falling AUD has been a tailwind for Australian investors in global equities over the past five years, it has been a headwind this quarter with the AUD bouncing 10 per cent against the US dollar,” he said.
“Despite the fears about the US economy and global recession, the US is bustling along. Nonfarm payroll employment in March rose by a solid 215,000 jobs, which puts the annual monthly gains for the first quarter at 209,000, up from an average of 190,000 in first quarter 2015.”
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