Watch out for speed bumps

Outlook – Watch for speed bumps

We expect local equity markets to continue to ‘muddle’ through in the near term, impacted by a combination of modest earnings growth (circa 5%), reasonable corporate balance sheets and valuation levels that, while full for the New Zealand equity market, are not in a ‘redline’ danger zone (especially relative to interest rates).

But there are likely to be a few ‘speed bumps’ over the next year. There are a number of consensus views.

First the US Fed is expected to increase interest rates. Investors will need to continue to adjust expectations about interest rates at the short end of the interest rate yield curve. US growth is expected to soften slightly to a 2.75% to 3.25% pace, while core inflation pressures remain subdued. Oil price weakness, while beneficial to consumers and businesses may create some unintended consequences that can impact negatively on some sectors and may destabilise some emerging economies.