As the global recovery shows signs of being more entrenched, Trevor Greetham, director of asset allocation at Fidelity, looks at how to position portfolios for an upswing that could last years.
As another round of Washington fiscal brinkmanship comes to an end, investors will focus once more on the strong fundamentals that have driven a 20% increase in global stock prices during the past year.
The recovery in global growth is broadening, with strong business confidence in the US and Japan enhanced by rising optimism in Europe and China. In the UK, a housing-led recovery has taken hold with a vengeance, with some real-time GDP growth measures running at annualised rates in excess of 4%. Even euro area unemployment is falling for the first time in two years.
The current economic upswing has lasted more than a year and there is every chance it will continue well into 2014.
Remember normal? Trevor Greetham on how to play the recovery
Inflation pressures are muted and no major central bank is likely to tighten policy for at least six months. With corporate earnings growing and liquidity plentiful, this is a bullish backdrop for stocks. We have been overweight equities in our multi-asset funds for more than a year and we maintain this position as our highest conviction call.
There were two reasons for the Fed’s unexpected decision to maintain the pace of quantitative easing (QE) in September.
First, committee members wanted to wait for a resolution to the fiscal standoff that was brewing in Washington. Remember, the current open-ended programme of Fed money printing began as an insurance policy against the “fiscal cliff” late last year, when President Obama’s Republican opposition threatened to force a sudden rise in taxes and a cut in spending.
This time around, politicians, again, merely delayed a final agreement on fiscal policy for a few months, leaving the threat of further disruption hanging in the air.
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