In the latest Oliver’s Insights, Dr Shane Oliver looks at where we are in the global investment cycle and comparisons between today and the period prior to the 1987 share market crash.
The key points are as follows:
- There is still sign of the sort of excesses that precede major economic downturns and major bear markets suggesting that (although US shares are overdue a decent correction) we are still a fair way from the top in the investment cycle.
- Key to watch will be rising inflation and aggressive monetary tightening.
- The current environment around share markets is very different to 1987.
This month of October often creates apprehension amongst investors given its historic track record with the 1929 and 1987 share market crashes. And it was in October 2007 that US shares peaked ahead of 50% plus falls (in most share markets) through the Global Financial Crisis (GFC). From the post-GFC share market lows in March 2009, US shares are up 278% and global shares are up 196% to new record highs and Australian shares are up 92%. After such strong gains, it’s natural to wonder whether another major bear market is imminent. Aside from left field events triggering a crash, the key question remains where are we in the investment cycle? This note updates our analysis on this front from earlier this year (see here) and also provides a comparison to 1987.