How long will this bull market last?

How long will this bull market last?


Let’s take a look
at how geopolitical risk in Europe and the Middle East
can affect us here in Australia, and whether the long bull market
in shares is going to continue. It’s been nearly six years since the peak
of the Eurozone debt crisis and by and large, European economies
have come a long way. The recent Italian election reminded us
that underneath the surface, things are still a bit fragile. Italy was one of the countries at the epicentre
of the Euro crisis in 2012. Along with Portugal, Ireland,
Greece and Spain, the Italians saw
their government bond yields soar as investors began to fear
that they might default on their debt. Since then, growth in Europe
has recovered. But it’s been uneven
and Italy is one country which has been left behind. We saw a sharp increase in volatility across global markets,
as for a few days there, it was thought
that the incoming government might favour leaving the Euro. That would be a pretty big deal. A ‘Quitaly’ to go along with ‘Brexit’. Global economic growth has been pretty strong
over the last few years and we’ve seen the impact of this
in higher commodity prices. The oil price for example has risen
from around US$26 a barrel back in 2016 to a peak of US$72 in May this year. This has pushed up petrol prices
nearly 50% locally. The good news is that most forecasters
expect the oil prices have peaked, as plenty of new supply
can come on stream when prices are above $40 a barrel. On the other hand,
oil prices do tend to go up when geopolitical risk increases, and tensions in the Middle East
are on the rise again, following the US withdrawal
from the nuclear deal with Iran. Since global share markets
took off in 2011, we’ve had seven years of strong growth. Nearly 14% per annum
in Australian dollar terms. Some markets
are looking a bit expensive, and while this isn’t
necessarily a cause for alarm, it’s probably unlikely that the next seven years
will be as good. There’s an adage
that bull markets don’t die of old age and while the fundamental drivers
of growth remain strong, this bull market
might keep going a little longer. Geopolitical risk is always with us and sometimes markets
react more than others. Another crisis in Europe,
an inflation shock, a trade war or a real war somewhere could all be triggers
for a market sell-off. For a long-term investor, these corrections can represent
opportunities, provided you hold
a diversified portfolio, don’t take more risk
than you’re comfortable with, and are able to stay the course.

Leave a Reply

Your email address will not be published. Required fields are marked *