Morley Fund Management has a neutral to moderate overweight position in the US amid encouragement th...
Morley Fund Management has a neutral to moderate overweight position in the US amid encouragement that domestic investors are rotating investments in the stock market rather than piling into cash.
Andrew Milligan, director of economic research at Morley, adds that if the Dow Jones index falls below 10,000 this would be a good buying opportunity. The index was around the 10,340 level on 17 April. The S&P 500 index is up by 5.2% in dollar terms in the 12 months to 14 April.
Milligan says: "I think we will have a short, sharp rotation in the US out of technology stocks and into value. People want to keep their money in the equity market and are not tending to move out of equities and into cash, although some are moving into bonds."
He believes the US economy is growing too quickly and expects US interest rates to rise by 50 basis points at the next Federal Reserve monetary meeting in May in a bid to slow the economy down.
David Binnie, senior fund manager at Scottish Life says the group is neutral in the US pointing out that although the economy continues to grow strongly, equity valuations look stretched. He adds: "There are also imbalances in the economy which are greater than those in the UK. For example, there is a large trade deficit, excess consumer spending and an excessive dependence on the stock market in terms of individual wealth."
Binnie says if there was a severe fall in the US stock market, this could lead to consumer spending drying up which would have serious consequences for the US economy.
The group is also overweight Europe where Milligan believes the growth profile is good as these economies are well behind the US in the business cycle. He adds it will be difficult for these markets to maintain momentum if there is a severe correction in the US. Milligan says if the markets start to believe the US has deep structural problems then this may lend support to European stock markets as investors focus on its greater economic growth potential in the near term.
The MSCI Euro index is up by 30.67% in euro terms in the 12 months to 17 April.
Milligan says: "From a relative valuation point of view, the UK is one of the more attractive markets at present. If it is the case that the Monetary Policy Committee of the Bank of England is on hold in terms of interest rates then that will proceed to be of benefit to the UK equity market. Clearly the fact the UK has less of a technology weighting than the US and Europe would appear to be to that market's advantage in the current environment."
The FTSE All-Share index is down by 6.16% in sterling terms in the 12 months to 17 April.
Scottish Life is slightly underweight UK equities despite continuing good prospects for the UK economy. Binnie says: "The UK continues to have a very good economic outlook with above trend growth and low inflation. It is a great environment but we are not particularly bullish on the UK stock market - profit growth does not appear to be as good as in Europe or the US. We have a small overweight position in Europe as it has a higher prospective growth rate than the UK and the longer term story is that companies are restructuring and consolidating. European companies are moving into line with companies in the US and UK and it is a model that the stock market likes."
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