Global stock markets are showing resilience in the face of the European and United States debt problems and the risks associated with a slowing in China's economy, Craigs Investment Partners director of private wealth research, Cameron Watson says.
"Investors are perhaps taking some confidence from seeing the European Central Bank finally lift its efforts to support the region's banks," he said.
Many had argued that it was more important to protect the banking sector than to keep inflation low, he said.
"Europe's sovereign debt crisis, the United States debt mountain and the risk of a slowdown in China are just some of the concerns that have left investors today far more fearful than cheerful," Mr Watson said.
However, despite that negativity, markets had found some resilience, he said, and that was reflected in the NZX being up 2% since late November, the ASX200's 7% rise, the US market's 13% lift, while in Europe, the area in most trouble, the German market rose 20%.
While the NZX was still 25% below its peak in 2007, Mr Watson said since its low in 2009, the market recovered by 30%, with "reasonable" valuations on New Zealand shares now.
He said the bond market was an important leading indicator, at present pointing towards economic recovery, as opposed to recession.
The yield on a 10-year New Zealand Government bond was 3.9%; higher than the 2.5% yield on the 2-year bonds, which meant the market was expecting the economy to get better, not worsen, Mr Watson said.
"When interest rates on longer-term bonds are higher than short-term bonds it indicates investors expect economic activity, and possibly inflation, will rise in the future," he said.
Therefore, investors were demanding higher interest rates on long-term bonds to offset the higher risk of inflation, Mr Watson said.
Another indication of a potential turning point could be seen in the withdrawal of $US102 billion from share funds in the United States during the 11 months to last November.
While this withdrawal "looked awful" and showed US investors were "anything but optimistic" at present, historically, data showed investors tended to invest heavily just before a market fall then sell just before a recovery.
"If this historical pattern is repeated, such large net withdrawals seen last year may well indicate a period of better performance ahead for the US market," Mr Watson said.
