By Ruth Alexander Peaking interest rates and improving liquidity are leading Threadneedle to foreca...
By Ruth Alexander
Peaking interest rates and improving liquidity are leading Threadneedle to forecast a more favourable macroeconomic environment for equities.
Giving a global overview at Threadneedle's roadshow 2000, Sarah Arkle, head of equities at the group, said the macroeconomic environment is generally favourable although further volatility is possible, resulting from concerns over inflation and profit growth.
Even so Arkle believes the trend towards disinflation remains intact and the higher oil price will have a more significant impact on specific companies and profits than on core inflation and monetary policies.
She said: "The oil price will remain fairly high but this will have a much more limited impact on inflation and economic growth than we have seen in past oil shocks. This is due to the fact oil consumption as a percentage of GDP has fallen sharply since the oil shocks in the 1970s through improved energy efficiency and alternative sources of fuel.
"In addition, the unions are now in a much weaker position than previously and there are still a number of disinflationary forces such as the internet making it difficult for companies to put through price increases. We have also been highly encouraged by the growth in productivity in the US, which is at its highest level for 17 years."
This year US corporate profits growth have come in at much higher levels than were expected at the start of 2000. Threadneedle has reduced its underweight position in North American equities and now sees any weakness in the market as a buying opportunity.
Arkle said: "We have taken some profits in Europe but remain slightly overweight as earnings growth remains good and restructuring remains on track. The forthcoming German tax law reform will be a further positive. We have also added to the UK.
"We are slightly cautious about Japan as, although expenditure has picked up, there are still doubts over how long it will take for the consumer to revive."
Threadneedle also believes Latin America looks particularly cheap among the emerging markets. At a sector level the group is underweight in telecoms but quite positive on banks and utilities because it believes interest rates are close to their peak.
Arkle said: "We are always looking for new ideas and sectors where expectations for growth are too low. For example, having been underweight in utilities in the US for years we are now overweight given the electricity shortages resulting from high internet usage."
Arkle said Threadneedle's asset allocation has an increasingly sectoral rather than geographic focus and this had been particularly noticeable in decisions taken over the past year.
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