26th February 2015
While stockmarkets have been on fire so far 2015, with many including the FTSE 100 reaching new highs, Psigma Investment Management has warned that a correction maybe on the way.
Earlier this week the UK’s blue-chip index finally surpassed its previous 1999 high and closed at a record 6,949.63.
In addition both the US S&P 500 and German DAX had already achieved new heights this year, while markets such as Japan had hit cycle highs in recent weeks.
Markets have in a large part been helped by a commitment from central bankers to further support for their economies, with low interest rates and quantitative easing.
Psigma’s Investment Management chief investment officer Tom Becket also highlighted that the main reason for this latest enthusiasm across global asset markets also comes down to the fact that Greece’s likely departure from the Eurozone has been put off to another day and all sides have backed down from their grandstanding poses in Europe.
However he added that this ultimately “is a case of putting off challenges to the future, again, rather than tackling the problem head-on and solving it”.
Looking at markets overall Becket said: “While we can certainly justify the recent move higher in markets and expected it, we do believe that markets are now in for a period of consolidation or a correction.
“Sentiment data, such as hedge fund positioning, hints at short term over-exuberance and with the latest corporate reporting season patchy, rather than strong, we feel a pause for breath is justified.”
Becket added that while he believed that the FTSE 100 “deserved to hit a new record high”, and in the medium term he feels that 7,000 and beyond is absolutely possible, now might be a good time to exercise some caution.
He said: “Following a great start to the year investors should probably book some profits and reassess the potential for corporate profits in the year ahead. Equity indices are suggesting that the world has become less risky in the last few months, but a lack of a decisive resolution in Europe, ongoing issues in eastern Ukraine and full valuations of many asset classes hint that 2015 is likely to remain volatile, but ultimately should be rewarding for investors.”