With sharemarkets in many parts of the world at or near all-time highs, some analysts are wondering if the most likely direction they will take as 2014 proceeds, is downwards.
According to the June 2014 van Eyk Investment Outlook Report, “Monetary policies remain accommodative and stock markets have had a good run recently, reaffirming a number of upward trends. The world equity market recently reached an all-time high and short-term overbought conditions have been evident. Consequently, it could be argued that stock markets are due for a correction or consolidation.
“The problem is that global growth remains fragile, and any move higher in oil prices may be the tipping point for the long-awaited equity market correction. Thereafter, the outlook for markets at this point probably depends more on what happens to oil prices than any other factor”.
The report says oil prices have firmed as the situation in Iraq unfolds, with fighters from the Islamic State of the Levant taking large northern parts of the country including the city of Mosul, and currently threatening Baghdad.
“Iraq is OPEC’s second biggest oil producer at 4 million barrels per day, and a fall in Iraqi output has the potential to stall the fragile global economic recovery and even cause recession in some regions. Iraq was expected to deliver half of the total growth in global oil supply by the end of the decade. This growth is required to meet increasing demand from China and India. Such a boost to output would require a huge investment in production facilities, which now seems implausible as Iraq appears poised to slide into sectarian civil war”.
This oil supply issue, in concert with other factors including an ongoing shortage of available capital in Europe lead van Eyk to recommend investors reduce their exposure to international shares towards what van Eyk labels a neutral strategic benchmark weighting, and adding the proceeds of that to their holdings in cash and alternative investments.