The S&P/ASX 200 index may continue to show short-term weakness due to poor United States sentiment, before rallying later in the year, a leading economist has said.
"We have struck bad weather again," AMP Capital Investors chief economist Shane Oliver said at a briefing in Sydney yesterday.
"The key risks I think are that the US has a deeper downturn [than expected], if China collapses and if mortgage stress in Australia [rises]."Oliver said.
Negative sentiment has created a slump in American markets this week, on speculation that the US may be in recession and that companies may need to keep raising capital to offset sub-prime losses.
Oliver said the S&P/ASX 200 may approach 5040 points [its March intraday low], but it was unlikely to go below that level.
But Oliver said he expected the market to have a strong rally in the fourth-quarter.
"Share prices have fallen way below profits," he said.
"I would be expecting the S&P/ASX 200 to be at 6350 by [December 31]."
The US sub-prime collapse has forced banks around the world to disclose nearly $400 billion in losses according to Bloomberg data.
