Equity investors are in for a further stomach-churning down-draft, but it will pay off to stay the course, according to AMP Capital Investors Ltd.

“It’s likely the pullback has further to go as investors adjust to more Fed tightening than currently assumed,” said Shane Oliver, Sydney-based global investment strategist at AMP Capital, which oversees about A$179 billion ($141 billion). “The pullback is likely to be just an overdue correction, with say a 10 percent or so fall, rather than a severe bear market.”

Oliver forecasts equity returns will remain positive in 2018, despite greater levels of volatility. While the MSCI All-Country World Index is down about 3.6 percent from its record high reached Jan. 26, it remains up more than 3 percent since the year began.

Earnings growth and gains in consumer spending fueled by wage increases will ensure economic expansion remains on track -- as long as runaway inflation doesn’t cause the Federal Reserve to tighten policy too fast, Oliver said. His proviso on avoiding a bear market is that the jump in bond yields isn’t “too abrupt and recession is not imminent in the U.S.”

Source:
courtesy of BLOOMBERG

by Adam Haigh

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