Russell not so gloomy

The Russell Investment Group has likened current market conditions and particularly concerns about the near-term direction of the US economy and share market to the conditions that prevailed during “the depths of the tech-wreck recession of mid-2002”.

The latest Russell Market Barometer said despite this gloomy outlook, there are reasonable grounds for expecting that global developed share markets will end 2008 in positive territory.

It said that while US economic growth was almost certain to slow over the first half of the year, a recession seemed unlikely, with the non-financial corporate sector being in good shape with low debt levels and strong profit margins.

What is more, the Russell analysis said consumer spending had remained remarkably resilient to the housing problems and there was little evidence of excess capacity or over-investment outside of the housing sector.

Looking at Australian equities, the Russell analysis said that it was possible the period of Australian share market outperformance might be drawing to a close.

However, it said that despite the headwinds it was difficult to be overly pessimistic about the outlook for Australian shares, with surveys of business confidence at near record highs and superannuation inflows remaining important factors to the local market.

It said that these were likely to boost equity market demand by around $30 billion during 2008 and that it could be presumed that the Future Fund would continue to build its exposure to local equities and will have another sizeable Budget surplus to invest.