This note looks at the recent pullback in share markets.

The key points are as follows:

– Shares have fallen over the last weeks or son on the back of concerns about China’s tightening, the regulation of banks in the US, and sovereign risk.

– This is consistent with out expectation for rougher and more constrained gains in share markets this year after the strong rebound from March 2009. Notwithstanding increased volatility, rising earnings are likely to underpin a rising trend in shares this year.

– The experience of 2004, when US shares spent nine months stuck in a range, and when Asian shares, some commodities and the Australian dollar had a decent correction but all withing the context of a still rising trend, is a reasonable guide as to what to expect this year.

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