The swift progress of the war against Iraq has recently raised investor optimism that an early end...
The swift progress of the war against Iraq has recently raised investor optimism that an early end to the conflict could reduce uncertainties over the health of the global economy.
As a result, global equity markets recovered as sharply as they had fallen in January when increasing political tension fuelled concerns over plummeting consumer and business confidence.
However, whether this rally will continue beyond what we have seen so far depends on the progress of the war and on an underlying improvement in the world economy.
In fact, global equities are likely to remain hostage to newsflow ' at the time of writing, the first signs of hindrance to the advance of the coalition army in Iraq are currently depressing equity markets.
Global equity markets have been extremely volatile in the past few years, affected by various unpredictable factors such as the terrorist attacks of 9/11, corporate scandals in the US and geopolitical tensions in the Middle East. Even in such a difficult market environment as this, there are stocks that have performed well.
Even when the future of global economic growth is uncertain, there are industries that we can expect to expand, albeit slowly. For example, in most developed countries, demand for healthcare products and services is growing steadily as the population ages.
However, intensifying competition means only those that can differentiate themselves from competitors through superior products or franchise will be able to survive, taking advantage of the market's expansion. In the US, we are confident that medical equipment maker St Jude Medical is a company whose solid fundamentals will enable it to continue to deliver unexpectedly strong earnings growth over the long term.
Recently, St Jude's share price has been boosted by speculation that it may become an acquisition target of Johnson & Johnson.
The oil industry is another area where we believe there are many excellent investment opportunities.
The international crude oil price has been in turmoil due to recent events such as geopolitical tension, which culminated in the ongoing Iraq war, an industrial dispute in Venezuela and more recently civil unrest in Nigeria. However, the rising crude oil price is not good for every oil company since they may not be able to raise their product prices to counter rising raw materials costs.
The short-term outlook for global equities is still difficult to predict, while the war continues. However, in the longer term, we believe equity markets have the potential to stage a considerable recovery, since current valuations appear low given the corporate earnings outlook.
In addition, many countries' central banks and governments are continuing with their efforts to boost economic growth by easing their monetary and fiscal policies.
Thanks to these measures, we expect underlying global economic fundamentals to improve over the course of this year and this should in turn provide support to the performance of global equities.
Global equities are at low levels.
Fiscal easing should boost global growth.
The war against Iraq could end quickly.
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