Risk appetite is high across the globe; markets are in a bit brazen mood. Investors are chasing stocks. Emerging markets are shining again. Speaking about India, markets are hitting highs quite regularly these days. You may be enjoying the up move if you have invested money in stocks or equity mutual funds; or you might be repenting for not having invested money when markets were really down. Equity markets in developed countries such as the United States, Germany, France and Japan have not only recovered from the lows of 2008 but are now near their 5-year high levels. Except for Russia, investors are still very optimistic about other emerging markets. Well, everything looks a lot encouraging, but what has much really changed on ground?

State of global economy

Markets across geographies have been rising on the hope that, growth will come back. However, the ground reality is, engine of global growth seems to have lost the steam. Despite of spending billions on stimulus packages what the developed world has achieved is minuscule. The recently released economic data, not only in just one region but across geographies may not appear encouraging, yet markets are bullish.

The ground realities…

• Manufacturing growth for the month of August 2014 has slipped to a 13-month low in the Eurozone.
  
  
• Growth indicators for leading economies of the Eurozone; Germany, France, Spain, Netherlands and Italy appear less assuring.
  
  
• At 0.3% in August, inflation reached a 5-Year low in the Eurozone which now faces a risk of deflation.
  
  
• Purchasing Managers' Index (PMI) which is a lead indicator of manufacturing growth fell to 14-month low in August in UK.
  
  
• Due to a drop in export orders, Britain’s main trade body has cut the growth forecast for 2014.
  
  
• China has been struggling to record higher growth, as manufacturing activities slimmed down in August. PMI for the month of August came in at 50.2, at a pace lower than that recorded in July. Chinese property market still looks weak.
  
  
• Struggle of Japan still continues as the economic indicators on job market, output and consumption are still weak. Unemployment rate was 3.8% in July (up from 3.7% in June and 3.5% in May). Industrial production recorded a nominal growth of 0.2% while retail inflation eased for the consecutive third month.
  
  
• Although the U.S. economic growth appears to be relatively unaffected till now, worries persist in the job market. Federal Reserve chief, Janet Yellen believes it would be safe to conclude that the economy has recovered only when wages start rising and depressed workers get back to work force. This seems to be a tough task for the U.S. economy.
  
  
• After recording a 9-month high in June, India’s core sector growth dwindled to 2.7% in July. Moreover sticky inflation remains a problem.
  
  
• Geopolitical tensions in the Middle East remain a risk to global growth.
  
  

Due to faltering growth and weak economic indicators, monetary authorities in the developed nations have been reeling under pressure for providing monetary stimulus. The European Central Bank (ECB) is expected to announce some more measures to stave off further slide in the Eurozone economy. Investors expect similar action in China as well. Back home, there has been a long-standing demand for reducing interest rates.

PersonalFN believes, so far stimulus packages have done little in getting developed economies back on track. Yet, markets are hoping for continuation of easy monetary policy. Hopes of monetary stimulus are triggering rallies in stock markets. Thus, PersonalFN is of the view that, current rise in stock markets can be misleading to an extent. As far as optimism about India is concerned, markets have advanced a lot and appear to have run ahead of their fundamentals. Market valuation is not cheap. This leaves little margin for safety.

PersonalFN believes, you need be more cautious while investing in stocks or equity mutual funds at this juncture. You shouldn’t overlook the fact that contagion of slowing growth has become universal and no single economy is immune to what is happening in the rest of the world. Euphoria in the markets may continue for some more time but eventually markets would come to terms with reality. It is important that you don’t get carried away by the exuberance in the market momentum.

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