Far East Capital Newsletter
It is difficult to justify the strength in the leading indices
25 Jan 2020

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It is difficult to justify the strength in the leading indices

There is a disconnect between the strength in the leading stock market indices and economic performance of the Australian economy in recent weeks (excluding the last few days). On a global front, the IMF has just reduced its global growth forecast for 2020, to 3.3%. It expects the US economy to grow at 2%, Europe at 1.4%, the UK at 1.4% and the rest of the world at 2.3%. China will experience roughly the same growth this year as last, at 6.0% versus 6.1%.

A PWC international survey of business leaders stated that 53% of these people expect global economic growth will decline this year, demonstrating the worse sentiment for some years.

The Labor Party is calling for economic stimulus because it is fearful of where we are going, but I supposed they are just wanting airplay. From where I sit there is nothing to panic about but likewise I cannot see where company earnings justify the strength in the market.

So, we are left to assume it is all about interest rates and dividend yields. Investors continue to buy dividend paying stocks. Non-dividend paying stocks are not very popular, and this applies to the vast majority of mining stocks. Leading gold producers still offer the best upside, but with the volatility that goes with the gold price. 

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