Investors could trim back positions on equities given a failure by a weekend meeting of the G20 group of leading economies to come up with concrete, new measures to boost growth, analysts said.
The Group of 20 finance ministers and central bankers declared on Saturday that they needed to look beyond ultra-low interest rates and printing money to shake the global economy out of its torpor.
But there was no plan for specific co-ordinated stimulus spending to spark activity, something investors had been hoping for after markets nosedived at the start of 2016 due to concerns about a slowdown in China, the world’s second-biggest economy.
“The fact that the G20 is going to do more of the same is likely to be greeted with a big yawn and a likely fall on stock markets,” said Richard Edwards, managing director at trading and research firm HED Capital.
Others felt equally discouraged.
“Some people will be disappointed that there are no concrete measures,” said Francois Savary, chief investment officer at Geneva-based investment and consultancy firm Prime Partners.
In their communique, the G20 ministers agreed to use “all policy tools – monetary, fiscal and structural – individually and collectively” to boost the world economy.
However, the two-day meeting in Shanghai highlighted differing views from policymakers on the best way forward, dampening the chance of co-ordinated action in the near future.
Phoebus Theologites, co-founder of multi-fund investment company SteppenWolf Capital, said the euro could rise against the U.S. dollar, since the G20 had cast a shadow of doubt over the effectiveness of more monetary stimulus from the European Central Bank (ECB).
Divisions have emerged among major economies over the reliance on debt to drive growth, and the use of negative interest rates by some major world central banks.
Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday that the debt-financed growth model had reached its limits.
A rise in the euro against the dollar often leads to a fall on European stock markets, since European companies’ exports typically benefit from a weaker euro.
The G20 communique also flagged a series of risks to world growth, including volatile capital flows, a sharp fall in commodity prices and the potential “shock” of a British exit from the European Union – known colloquially as “Brexit”.
Sterling fell to a seven-year low against the dollar on Friday because of worries over Brexit, and HED Capital’s Edwards said it would remain under pressure, given the G20’s warning.
“Sterling is already weak and it will remain weak,” he said.
Source: Reuters (By Sudip Kar-Gupta, Additional reporting by Patrick Graham and Anirban Nag; Editing by Clelia Oziel)