Tilney has overweighted US and UK equities in the belief these economies are set to see a more rapid...
Tilney has overweighted US and UK equities in the belief these economies are set to see a more rapid recovery than Europe.
Philip Okell, director of Tilney's institutional fund management division, says the group is neutral in European equities and is also underweight in Japan. Tilney is overweight in Far Eastern equities and is favouring this part of the world as a geared play on the expected US recovery.
Okell says: 'Overall, we are overweight equities and underweight bonds and have been for a few months in the wake of the large amount of liquidity poured into the global economy after the terrorist attacks in the US. We think equities will do better than bonds in this environment.'
Okell says that decisive reform of the banking sector in Japan would lead the group to look at investing in this market again.
Noel Mills, asset allocation strategist at Barclays Global Investors, adds: 'It is hoped that any improvement to the global economy will be of direct benefit to the Japanese. There has been much speculation recently over new restructuring and reform measures that could at last turn the Japanese ship around. The market is off its 18-year lows but few have confidence that this is the decisive turnaround investors had been hoping for.'
Mills is also concerned about the level of US equity valuations, especially if good earnings news fails to come through. He says: 'US equities cannot be considered cheap on any valuation benchmark over the longer term. A strong earnings rebound has to come though to validate present market levels. Anything less will disappoint and cause the market to tumble.'
Mills points out that in the fourth quarter of last year, US GDP grew by 1.4% on an annualised basis compared with the 0.2% initially calculated. Consumer spending rose by 6%, which Mills says was the fastest rise since spring 1998, then at the height of a boom.
Mills says: 'Clearly, zero financing arrangements available on auto sales were behind this surge. And such sales will have borrowed heavily from spending in the current quarter. Nevertheless, with consumer confidence rising again, it is clear that, given the right incentives, US consumers are still willing to spend.'
Mills adds that US government spending rose by more than 10% on an annualised basis in the fourth quarter of last year ' the highest increase for more than 20 years and expects this to make a positive contribution to growth. Mills says that the UK saw no GDP growth during the final quarter of last year ' the first time that the UK economy has failed to grow since 1992.
Okell adds: 'The UK market is not particularly cheap although we think there is upside in it. We do not see there being a huge difference between the US and UK markets and a lot of this will depend on what dollar returns you get. We are not particularly bullish on the US dollar because of factors including the balance of payment problems in the US.'
However, in Europe, Germany has seen negative growth over the past two quarters, Mills adds, technically putting it into recession.
Tilney favouring UK and US markets.
US consumer spending still strong.
Far Eastern markets favoured.
US valuationsdepend on god earnings news.
Japan continues to be out of favour.
Germany experiencing recession.
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