Correction on global markets 'not surprising'

Updated / Tuesday, 6 Feb 2018 10:22

Peter Brown, of the Institute of Investing and Financial Trading, tells Brian Finn that the real worry for investors was inflation

The global stock market sell off continued overnight with Asia following the lead of Wall Street and continued in Europe, albeit with some pullback as the morning progressed. The Dow Jones registered its biggest one day fall in six years last night wiping out all the gains made on the index so far this year. 

Peter Brown, of the Institute of Investing and Financial Trading, said the fact that there was a correction was not hugely surprising. "In the past, we'd have 10% corrections on average every 11 months. We've become accustomed to there being no correction. We've had none since 2016", he said. 

"The reason there has been a correction is that there is a massive amount of indebtedness right across the globe. If rates rise, there will be trouble. We're starting to see the beginnings of inflation and that means that rates are on the way up," the analyst said. 

Mr Brown said he was not hugely convinced by the argument that investors were dumping stocks to move into bonds, among other asset classes. "Bond markets are not hugely attractive. Yields are still very low. Only in the US are we seeing some returns. We're still in the 1% space in Europe. Net of tax, it's not an attractive alternative for investors."

He said the real worry was inflation. "If it now takes hold and gets out of control, central banks will be forced into action. They've been behind the curve and slow to raise rates. If inflation takes off, rates will have to increase sharply and quickly. That will cause problems for companies that have borrowed a lot of money," he concluded.

MORNING BRIEFS - Japan's Nikkei closed 4.7% lower in earlier trade while the Hang Seng in Hong Kong was down down over 5%. That followed the lead of Wall Street where the Dow Jones closed 4.5% lower. At one point it was down over 1,500 points or 6%. All of the gains made so far this year have been wiped out. But US stock markets had a phenomenal year in 2017. The Dow soared by 5,000 points - it has never done that in a single year. And European stocks are on course for their trading day worst day since the Brexit vote in 2016.

*** It is now just over two years now since the Workplace Relations Commission was created following the amalgamation of five organisations dealing with workers rights. It is holding a seminar today, with the "gig" economy and an ageing workforce among the topics for discussion.