SMI hits new record high on 5 January 2018

On Friday 5 January 2018 the SMI increased 48 points or 0.50% to 9557.  The previous record for the SMI 20-stock index, which is unadjusted for dividend payments, was at 9,548.09 points on June 4, 2007. Historically, the record low was 1287.60 in January 1991.

Many global markets celebrated new peaks feeding off New Year exuberance. The Dow Jones Industrial Average pushes past the 25,000 mark for the first time, Hong Kong’s Hang Seng closed at a decade high and the London FTSE 100 index hit a new intraday high of 7720.31.

Investors around the world have been prompted to a share buying frenzy on expectations that US president Donald Trump’s recently passed tax cuts will have a massive growth boost.

A global recovery in growth has also benefitted from cautious central bankers worldwide keeping interest rates low and pouring liquidity into markets.

Recent news from the US Federal Reserve underpinned the mood that central bankers believe the tax changes will boost growth. Buoyant jobs figures are also set to add to the positive USA economy.

Analysts feel that shares remained attractive because returns from bonds were relatively low due to the lack of inflation which might force central banks to suddenly raise interest rates steeply.  However, several central bankers and former German finance minister Wolfgang Schäuble warn of over mispriced risk in markets.

The caution focusses on the key risk of inflation that might ultimately bring markets down. Increasing inflationary pressures would potentially force central banks to tighten rates faster than the market is expecting.