The bull run for global stockmarkets will end about 2010, which is when the baby-boomers start to retire, says AMP Henderson Global Investors chief economist Dr Shane Oliver.
“Baby boomers are aware that the public pension system is not going to provide for them in retirement, so they are taking more risks,” he told the recent Melbourne FPA chapter lunch.
“These investors are wiser and are willing to have more funds in equities and I can’t see any evidence that they will go away.”
The global economy is in one of its longest periods of growth, with volatility at an all-time low, Oliver says.
“Investors don’t panic when the sharemarket drops and in many cases they buy more shares to take advantage of the low prices.”
He believes the IT revolution has a long way to go and that will continue to drive stockmarkets.
“IT spending in the US, as part of GDP, is still a long way ahead of many countries and these will try to catch up,” Oliver says.
The growth of the Internet is another driver that is developing fast. The car took 40 years to reach 40 per cent market penetration globally. The Internet has achieved it in less than 10 years.
IT is also a virtuous cycle, he says.
“IT puts pressure on pricing so companies cut costs and they turn to IT to bring those costs down,” Oliver says.
While this should push up demand for tech stocks, Oliver sees further falls. AMP is now taking a neutral position in this sector, having been underweight previously.
But he sees no 1929-style crashes on the horizon.
“I am bullish and not fussed about things as you have to look at the market drivers.”
Oliver’s “worry list” – which can alter this rosy picture – includes growth slowdown, inflation, oil prices and a currency meltdown leading to higher interest rates and lower returns.
“The slowing of the global economy is due to manufacturing, not the IT sector,” he says.
“As Australia is tied to the US, if the US economy slows, then so will ours.”
The concerns over the US economy centre on the forthcoming US Presidential election and the strong oil price.
