Most global equity markets have now recovered the pullback of mid January to mid February to end the March quarter higher. Fears stemming from sovereign debt issues and Chinese authorities slowing growth have largely been put aside as markets focussed on other factors. We would expect a sustained, but uneven, global recovery in 2010 and beyond with Asia and Australia leading and Europe lagging. Increasingly, a number of central banks have started exiting their earlier policy support measures and are now starting to look to raise their official interest rates. In China, higher reserve provisions have not sufficiently curbed credit growth and higher interest rates and an appreciation of the Yuan will probably be required to prevent a further overheating in its economy.

In Australia, the economy continues to grow strongly. Fundamentals are continuing to point upwards and the risks to domestic growth and commodity prices continue to be on the upside. This would suggest that the Australian equity market overall should be well supported by both revenue and earnings growth in the remainder of 2010. Risks however remain and we believe that a level of volatility in markets will continue for some time.

Going forward, sovereign debt issues of European countries, fears of the effects of a moderation of growth in industrial growth in China, are likely to continue to pose risks to the improving global growth outlook.

Download a pdf version of this report:2010.04.21 Quarterly Economic and Market Commentary