Market Watch: Why shares are hitting new highs as economic fears rise

Shares around the world have hit fresh records this week - shrugging off growing concern about the real economy slowing down.

New Zealand's NZX-50 is now up 20 per cent this year - six per cent in the past month.

What's going on? And should we be worried?

Last weekend Chinese President Xi Jinping and US President Donald Trump appeared to strike a truce in the trade war.

That seemed to be a green light for investors.

The disconnect between the economic outlook and record sharemarket growth continues to grow.

The big driver remains the direction of interest rates - which seem to be on their way down again worldwide on growing US recession fears.

Indicators for areas such and manufacturing, industrial production and trade all point to lower economic growth.

"Certainly central banks are concerned," said Taylor. "We've seen interest rates fall between one and one and a half per cent in the past six to nine month, that's significant."

The Reserve Bank of Australia this week cut rates again to one per cent.

"For economies with full employment and growth at around two percent, to have interest rates at one per cent just seems crazy."

It was also strange to see that the markets had hit highs when rates were going up last October, on confidence that the economy was looking good, but were also rising now on the bad news because it meant falling rates.

"We are starting to move into areas that are unprecedented in terms of [market] valuations but we're also unprecedented in terms of where interest rates are."

Are number of countries around the world were offering bonds with negative yields, Taylor said.

"Where are you going to put your money? If you require a return of five per cent, you're a pension fund or a KiwiSaver fund, you can't go into bonds that have negative yields," he said."

There was also the fear of missing out (FOMO) which was weighing on investors who may have already exited the stock market but were now watching the records roll on.

"People don't like to miss out on returns and if they see markets going back up they're going to chase those returns."

"I think investors have all got a bit of a case of end-of-cycle-itis," Taylor said.

There's a feeling that after 10 years the bull market must end.

"There's nothing to say it can't go on for another five years. It could do. Maybe we stay in an environment with very low interest rates, growth that is low but stable, in which case equity markets can cope with that," he said. "With the caveat that growth doesn't go off a cliff."

- The Market Watch show is produced in association with Pie Funds.