Aussies warned on looming 'pullback' in markets

One leading Aussie economist has warned investors to expect some temporary uncertainty in domestic share markets, but there are also some opportunities surfacing for opportunistic investors.

AMP Capital chief economist Shane Oliver said the recent rebound in shares, commodities and commodity currencies like the Australian dollar has been so fast it has taken them to a point where they have technically been overbought.

There has already been some pullback last week, he said, with the trigger provided by various Fed officials “expressing confidence in the US economy and the Fed’s desire to continue raising interest rates with its April meeting being ‘live'”.

“As a result, the US dollar reversed a bit of its recent fall and most share markets, commodities including oil and the Australian dollar pulled back a bit,” said Mr Oliver.

This pullback, he said, may still have further to run but the broad trend of the share market is still upwards.

“Supportive of this are slightly better March business conditions readings globally, lessening concerns regarding China and confidence that the Fed is aware of global risks and doesn’t want to accentuate them by tightening too aggressively,” he said.

“Beyond the near-term uncertainties, we still see shares trending higher this year helped by a combination of relatively attractive valuations compared to bonds, further global monetary easing and continuing moderate global economic growth.”

However, there is some good news on the horizon for SMSF trustees and investors, with asset manager Fidelity confident of the opportunities in oil investment.

Fidelity investment director Alva Devoy said the current oil price is unsustainable with the majority of oil projects non-viable or profitable at this level.

Consequently there have been numerous oil projects cancelled in the past 18 months, and increasing defaults and bankruptcies within the industry.

“Companies with stronger balance sheets have been able to buy assets from these companies going into default, which means we are getting a consolidation in what is currently quite a fragmented market in the US,” said Ms Devoy.

This consolidation, she said, along with the increasing requirements for oil from China, is improving the supply/demand balance for oil, and will see the “oil market tighten significantly in 2016”.

“We’re currently looking at energy companies with very strong balance sheets, that are not wholly debt-financed, that have good assets and are low-cost producers,” she said.

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