LONGER TERM
Neutral/Bullish
I continue to see good opportunities across UK and global equity markets. I expect interest rates to remain lower for longer and believe that companies that can grow dividends will be sought after at home and overseas. Given relative valuations and the stage in the recovery cycle, we prefer Europe and Asia versus the US stockmarket. On valuation measures, in relative and absolute terms I see little value in most areas of bond markets. While we believe rates will be lower for longer, I am not in the long-term deflationary camp. When interest rates do edge up, areas of bond markets will get exposed. It is an asset class we are selective and underweight.
Jim Wood-Smith, Hawksmoor Investment Management
THREE MONTHS
Neutral/Bullish
The global economy appears to be taking a turn for the better. American credit growth is increasing, Europe will see the benefits of QE and the oil price is a lovely bonus. The wild card is China, where we are worried that the economy has slowed more than official data imply. Global equities have performed spectacularly well [recently] – a pause would be healthy. Bond markets are sensitive to short-term news and 2015 has been a rollercoaster. Yields fell far too low in a misinterpretation of deflation and in response to European QE, but have risen back to where they started the year. We expect yields to drift upwards as markets focus on the likelihood of higher base rates.
LONGER TERM
Neutral
Our concern is that debt levels have risen massively since the end of the financial crisis and that interest rates are going to rise. The impact will be just as much of a step into the unknown as QE was. So long as nominal returns on cash and bonds remain so low, it is hard to see anything other than equity remaining the first-choice asset class. Higher ratings will eventually be capped by an increase in supply. The world is in a prolonged period of low core inflation, with large fluctuations from non-core energy and food prices. The global economy is edging back towards ‘normal’ growth, whereas bond yields are still at crisis levels, which should mean that the trend in yields is turning up.
Kevin Boscher, Brooks Macdonald International
THREE MONTHS
Neutral
The US economy is not immune to the growing global deflationary forces. As other countries seek to weaken their currencies to stimulate activity, this is putting upward pressure on the dollar, which is a form of monetary tightening as it negatively impacts corporate profitability and exports. Analysts are lowering their profit forecasts for US firms at a time when valuations are a little stretched. Also, while the eurozone appears to have resolved its differences with Greece, the compromise is not a long-term solution. Looking beyond the next few months, we remain positive on the prospects for most financial markets, especially as cash will continue to offer poor returns.
