Equities will be a top performer during the next 12 months, fund managers are predicting. Steve Cle...
Equities will be a top performer during the next 12 months, fund managers are predicting.
Steve Cleal, head of strategy and asset allocation at Morley, believes equities will perform better than bonds and cash, despite negative factors such as recent concerns about a slowdown in the US.
He says: "One of the big uncertainties currently is the pace of economic activity, particularly in the US. We believe growth there will slow down but remain positive so we do not believe there will be a recession over the next 12 months. That means the Federal Reserve can cut interest rates and that should be quite supportive for the equity markets."
Morley is overweight European and Asian markets, such as Japan and Korea, but underweight some emerging markets, such as Mexico and South Africa, which Cleal says are likely to be more exposed if there is a slowdown.
He adds: "Emerging markets have had an incredibly strong run over the past five years. They have really risen very sharply and our view is they have probably gone a bit too far."
In markets such as Europe, Morley is investing in defensive sectors such as food retail and pharmaceuticals in order to provide protection from any downturn.
Richard Batty, global investment strategist at Standard Life Investments (SLI), says on the basis of a UK-based balanced fund, SLI is heavily invested in equities and bonds but underweight property and cash.
Explaining the preference for equities, Batty says: "We do not think we are likely to see the end of the business cycle in the medium term. We are seeing a soft spot in the US economy, and the rest of the world may see a slightly softer growth environment as a result of that, but nothing material.
"That suggests you still want to hold equities because profit growth will likely slow but still remain mid or high single digit this year, and probably similar or better next year."
Batty adds that there has not been aggressive tightening in interest rates, enough to derail the corporate sector.
He says: "That is the key - the corporate sector has been enjoying unprecedented profits growth and elongation of the business cycle in this cycle and that has obviously been feeding through to a strong performance from equities. We think that is likely to continue."
Roger Noddings, chief investment officer at HSBC Investments, says its central view remains one of a positive outlook for equities versus other asset classes. He says: "Although fundamentals suggest that the expected level of return in equities is diminishing - we expect high single digit to low double digit growth in the asset class as a whole over 2007.
Risks are increasing, which suggests that we could experience
more volatility, as you would expect in any normal maturing market rally, but for any investor with a reasonable investment horizon this is worth weathering given the still favourable upside potential."
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