Economy ‘no longer a bedridden patient’

THE head of investment at the nation’s biggest superannuation fund, AustralianSuper, says 2017 marked a turning point — the year the patient “left the hospital”.

The turnaround, Mark Delaney says, started in mid-2016 but last year “was the first time where all main areas of the global economy picked up”.

In the eight years following the financial crisis that struck late in 2008, economies struggled for momentum, he told Business Daily.

“I think 2017 was the year the patient left the hospital and went home and was walking around the house,” he said.

The broad perception of the global economy and financial markets “materially changed”, he said, and “in effect the world economy was no longer a patient”.

“It is right in the recovery zone,” he said.

Mr Delaney said there are four stages in the life of a market — panic, worry, neutrality and euphoria.

Moving into 2018, the market has “gone from worry to neutrality and heading toward euphoria,” he said.

“But you wouldn’t describe people you meet in the street as being euphoric like in 1987,” he said, referring to the mood that prevailed ahead of the seismic share market crash that year.

“We are not there yet — but we are watchful of whether we are entering a euphoric phase.”

Mr Delaney believes the coming year will deliver “corrections” in some markets, rattling investors who still recall the events that unfolded during the financial crisis.

Counterintuitively, this is the very environment where euphoria can take hold.

“Every year there are one or two events which cause equity markets to correct,” he said.

“Most the time these don’t change the fundamental trends of the equity market.

“But one or two of these will mean the end of that longterm trend and the start of a new bear market.”

He said many investors and analysts would inevitably regard “these corrections as indicators [of] the start of a new bear market”.

“And if history is any guide, they will call those corrections too early as bear markets and probably won’t be prepared enough when it does come around,” he said.