While the summer weather may have been dodgy in parts of Australia, the sun was certainly shining on investment markets. Global sharemarkets in January and February turned in their best performance for years.

But we can’t help but wonder whether equity markets have raced ahead of reality and there could be stormy times ahead. The ugly stick could be about to drop.

Last week served up a healthy dose of reality;

. China downgraded their economic growth forecast to 7.5 per cent for the next year. Its always been thought China needed 8 per cent growth to soak up new employment and avoid social unrest, so the downgrade caught everyone by surprise. Mind you the Chinese aren’t stupid.

They have been paying top dollar for commodities as prices have risen strongly on the assumption Chinese demand would stay strong. By spooking the market, commodity prices have fallen so China won’t be paying as much for raw materials. Smart.

. Australia’s economic growth for the December quarter turned out to half what the experts predicted and showed the low gear of the two speed economy is affecting the whole country.

. nervousness returned to the state of Europe after troubled southern European countries showed they still can’t deliver on their promises.

Bottom line is that while equity markets have been buoyant, there is still a lot of uncertainty around so be careful.