Harbour Commentary: The soft patch is behind us

Australasian Strategy - A stronger outlook

Disruptive structural forces still provide medium-term risks for investment returns. In particular, the balance between debt deflation on the one hand and commodity-monetary-led inflation on the other, highlights the tension in markets. 

The Chinese transition from an investment-led economy to a consumption-driven economy also weighs on investor minds. However, equity markets have recently recovered as more positive cyclical forces remind investors that the earnings outlook remains positive for many sectors.

The fact is that the global path of activity is becoming less correlated, and activity within economies is also dispersed. The US is seeing better growth momentum in manufacturing. China would appear to be near the end of a tightening cycle, while European business confidence is still weakening. However, on balance, we think that markets have become too bearish on growth prospects.