As we approach the end of January, investment markets are close to all-time highs.  Global economic momentum and profit growth is good.  Investment markets remain buoyed by AI related investment activity as well as ongoing fiscal deficits and relatively low interest rates.  Politicians and Central Bankers are unwilling to rein in highly stimulatory policy settings, despite record levels of debt and inflation higher than target levels in many countries.

Thus far investment markets have generally shrugged off the recent erratic US policy announcements, taking the view that they are just Trump’s negotiation tactics and that, in essence, the good times will continue.

Nevertheless, our view is that there is an underlying cycle of boom and bust and we appear to be late in the cycle.  The current extremes in valuation for some financial assets may result in public share markets struggling to provide good medium to long term returns from here on in.  Investment markets seem to be banking on AI productivity improvements being quite profound and there being no large political, economic or other external shocks that could cause an ongoing loss in confidence in trade and financial systems.

Still, signs of nervousness are evident. Precious metals are reaching new highs as global investors reassess holding their reserves in US assets.

In Australia, inflation remains above the RBA’s preferred level.  Australian company profit growth is modest outside the resources sector, which is benefiting from the stronger metals prices.

In response, our portfolio positioning has become a little more cautious. We are shifting away from large US companies, many of which are trading at extreme valuations, and focusing on smaller, value-oriented companies globally.

If you would like more detailed insights, please reach out to us.

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