Investors need to be cautious looking back at market performance over the past 12 months as the rise from the low point of the Covid crash is flattering returns, says Pie Funds chief executive Mike Taylor.
Annual returns for the past year were unlikely to be repeatable and it was probably time for a pause in global market growth — particularly US equities, Taylor said.
"There's been a lot of stimulus thrown at the market in the form of quantitative easing, and into consumers' hands, via the fiscal stimulus," he said.
"That is finding its way into the market. So probably the best thing that could happen is a bit of a breather rather than it racing up too much more and then a shock with a 10 or 15 per cent fall."
The local NZX has already seen a pause and has been tracking sideways since February.
The last year had seen a huge increase in household saving around the world, Taylor said.
It was not yet clear where or when that would be deployed by the public.
In New Zealand, Reserve Bank statistics show household deposits have climbed by $16.6 billion since the end of 2019 and consumer credit has shrunk by close to $2.8b over that period.
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"On a global scale that's small," Taylor said. "Some countries have increased their savings by more than 20 per cent." That included countries in Europe, which had gone through strict lockdowns for long periods.
The positive thing was that underpinned the prospects for an economic recovery, he said.
How much of that flowed into equity markets remained to be seen.
"I think what we've seen so far is a reflation of the market, based on an increase in multiples, and now what we are going to get is an increase in earnings as a response to the economic recovery."
Already there were signs that the high-flying tech stocks that were booming as a result of Covid had started to come off versus the market.
"So what's going up? Things that weren't performing that well during Covid — financials, airlines, real estate — recovery type things."
- The Market Watch video is produced in association with Pie Funds.