Bonds – expect lower inflows Europe – staying positive Emerging markets – likely to stay in demand
Over the coming months, we expect that in the absence of a major shock to the financial system, that inflows into traditional Government Bond markets will slow further. The major reasons for this are of course the higher potential returns which many still believe will be harvested from equities and improving Global Economic growth forecasts. In addition, in a few selected sectors, it is still possible to pick up equity income stocks which produce a healthy yield and which may well grow each year at a rate which is in excess of inflation although we would warn against making this your sole strategy.
We continue to view European Equities in a positive light given the re-bound in Consumer confidence on the Continent, together with lower chances of political upsets and of course the likelihood that interest rates will stay low, regardless of any potential tapering of the Quantitative Easing (QE) program.
Elsewhere, it seems quite likely that investors will continue to look towards Emerging Markets as a major source of growth over the coming years. Although equity markets ratings became less cheap in some countries and sectors, there remains a desire among global investors to gain exposure to some of the fastest growing groups; especially as the middle class and disposable incomes expand.
Despite what seems to be a surfeit of good news at the moment there is a distinct chance that this improves further as left field ideas like US tax cuts and Eurozone reform are definitely not priced into markets at current levels. With the final quarter of the year (which has historically produced some of the best returns of the year) there is perhaps more chance of a melt up rather than a melt down.