Westpac chief executive officer Brian Hartzer has cautioned that global markets could experience an increase in volatility going forward as years of “unprecedented” liquidity from central banks that has pushed up asset prices is withdrawn and economies adjust to structural changes.
Speaking last week ahead of this morning’s ceremony to open trading at the New York Stock Exchange, Mr Hartzer said markets were “priced for perfection a bit” at the same time as massive changes in economies, such as the rise of digital through technological advances and ageing populations.
“There’s been unprecedented amounts of liquidity pumped into markets and that is just pushing up prices of all sorts of things,” he said.
“So markets are priced for perfections a bit at a time when there is a lot of fundamental change going on.
“The world economy has proven itself to be very robust and resilient but it would be silly to not recognise that when economies transition from one point to another it is not necessarily a straight line. So people should be prepared. To me, the basics still apply. You should be conservatively geared and be prepared to for some volatility.”
Mr Hartzer is meeting investors after the bank’s full-year results and “ringing the opening bell” at the NYSE for the first time almost 30 years after Westpac was listed on the exchange on March 17, 1989. It’s the only Australian bank listed on the NYSE via American Depositary Receipts and one of only four Australian companies, after initially entering the US in March 1970 with a representative office in New York. Through the next two decades Westpac expanded by adding offices and acquiring William E. Pollock Government Securities, before winding back its international operations and closing all but the New York office in 1992 in the wake of the October 1987 global stockmarket crash and early 1990s economic downturn in Australia.
Mr Hartzer said while Westpac had experienced ups and downs in the US over the years, the presence had assisted the bank’s debt funding needs and its support of customers.
It comes amid ongoing debate globally in markets about asset valuations with Wall Street’s key indexes trading around record highs despite signals of ongoing interest rate hikes, and Australia’s S&P/ASX 200 recently breaking through 6000 points for the first time in a decade.
Wall Street’s S&P 500 index this morning closed up 0.8 per cent at a fresh record high of 2647 points.
Bonds yields also remain low globally, reflecting high prices, while other assets classes such as art are also attracting demand: Leonardo Da Vinci’s painting “Salvator Mundi“ recently fetched a record $US450 million at auction.
But in economies, mixed signals abound.
In Australia, NAB’s monthly business survey shows conditions at a record high, while wages growth and interest rates continue to linger at record lows.
As Macquarie’s analysts wrote this week: “As 2017 draws to a close, the combination of good global growth and low inflation has seen risk assets move substantially higher. However, despite the strong gains, the rally has been among the most unloved in history, as many investors have remained on the sidelines, worried about valuation and the risk of further shocks.”
While tipping the global economy to keep delivering above average growth next year, the analysts also cautioned that the “goldilocks” environment of low yields and strong growth might become more treacherous in 2019 as Europe potentially joins the US in raising interest rates and conditions in China ease.
Westpac economists are expecting global GDP growth to hold flat at 3.6 per cent in calendar 2018, and for growth in Australia to ease slightly to 2.5 per cent as the housing market slows and consumer spending remains constrained. In turn, they expect the Reserve Bank to keep the official cash rate on hold next year as the US Federal Reserve raises rates.
By Peter King
Acting Chief Executive Officer, Westpac