Investors should not expect the bull market to return too soon, says Axa Investment Management, as U...
Investors should not expect the bull market to return too soon, says Axa Investment Management, as UK equities are likely to decrease in value again next year.
Senior investment strategist Nigel Richardson predicts the equity bubble will not totally burst, however there is some concern that investors will see fleeting rallies in the UK and US markets as an indicator of upside potential.
Richardson says he believes shares may now have returned to "fair value. But cooling housing price inflation and slowing consumer spending are likely to reflect true confidence in the equity markets as corporate earnings will have little positive news to offer given the global economic slowdown.
"Looking ahead, we think that the bubble will begin to deflate, rather than burst. As the effect of previous aggressive monetary easing begins to wane, house-price inflation will cool, mortgage equity withdrawal will diminish and consumer spending will decelerate in 2003," says Richardson.
"Equities may have reached fair value and have modest near-term upside potential. We think that UK and US equities have now probably returned to fair value and the recent resilience of equities in the face of poor economic news suggests that investors believe this to be the case. Although equities may face some near-term upside, it would be a mistake to start thinking in terms of a renewed bull market. The past twenty years' bull run was the exception, rather than the norm, and equities are likely to trade in a broad range around their established fair values. As for bonds, yields have dipped below their likely long-term level and will rise modestly in the year ahead," continues Richardson.
Emergence of Axa's comments on the global economy and trading seem to reflect a changing mood among fund managers, as Henderson Global Investors last week said it believed the FTSE 100 index would be fairly valued at around 3600 to 3700 points.
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