Invesco believes emerging market equities offer greatest potential for significant equity gains...
Invesco believes emerging market equities offer greatest potential for significant equity gains over the next twelve months. The group warns though that hand-in-hand with this enhanced potential is a much greater downside risk should market sentiment take a turn for the worse.
The assertions were made last week at the group's Global Asset Allocation Committee meeting. According to Invesco's model, US, UK and European equities are currently 20-30% below the long-term estimate of their 'fair value'. Expanding on this, the group said that: "On a valuation basis, emerging market equities look even more attractive, provided there is leveraged exposure to the inventory cycle turnaround and a rebound in business investment."
Looking ahead, in the short term, Invesco expects to see further monetary easing from all the key monetary authorities, with another one or two cuts taking the Federal funds target rate down to 2% or less by the year-end. In addition to this monetary stimulus Invesco reckons it is clear that the US economy will also be supported by a substantial fiscal injection, citing the US Government's spending on the military and on domestic security as well as a large spending package devoted to the rebuilding in Manhattan.
This combination of monetary and fiscal policy, says Invesco, will deliver a powerful boost to the US and global economies which should first offset and then overcome the chief negative influences on US growth.
Concluding; Invesco believes the US economy will suffer a more profound slowdown as a result of the terrorist assault, but this should lead to a more vigorous US-led upturn in 2002. Furthermore the group thinks this US upturn is likely to be reflected rather more vigorously in the UK and Europe, given their greater distance from the deflationary epicentre.
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