The consensus is that the world economy is likely to slow during the course of this year, with infla...
The consensus is that the world economy is likely to slow during the course of this year, with inflation flattening out or even moving downwards.
But continued merger and acquisition activity sweeping global markets has created a generally positive view for global equity markets.
Even if global economic growth slows, the US economy looks set for a soft landing, while European growth is likely to be well-supported. Meanwhile, monetary conditions look set to aid investment and consumption growth in Japan, according to Neil Rogan, manager of the Gartmore Sicav Global Focus fund.
He points out the increasing prominence of emerging markets in global terms as their economies expand. "In a record year for IPOs around the world, four out of the 10 largest listings took place in equity markets that are classified as emerging," says Rogan. "Last year we saw the largest-ever IPO, when ICBC in China raised almost $22bn. In second place was Bank of China and the third largest listing of 2006 was Russian oil group Rosneft."
He has also found the recent performance of the Bric (Brazil, Russia, India and China) group of countries very appealing. And he is not the only one. When Fidelity decided to break up its hugely successful Special Situations fund last year, what was once the largest UK fund was divided into two funds, one sticking with a UK-only mandate, the other investing on an unconstrained global basis.
In terms of global opportunities, the US and the UK are no longer dominant, as an economic recovery in Europe (and to a lesser extent Japan) improves the prospects of these regions. Indeed, the Japanese economy has shown signs of emerging from 15 years of deflation. Interest rates remain effectively zero but could rise this year with bank lending.
The global information advantage will continue to allow fund managers to identify cross-border trends. For instance, last year British Airways caught the eye, initially due to its attractive valuation. High oil prices and a succession of terror alerts had been making conditions difficult but as the outlook for earnings improved, share price performance picked up. This investment idea translated across the Atlantic, where Continental Airlines has been performing particularly well, reaching levels last seen before 9/11.
Against a background of increased merger and acquisition activity, shares in both British Airways and Continental Airlines have benefited from speculation that the industry is ripe for consolidation.
This trend can also been seen in other markets, including Ireland, where Ryanair made a hostile bid for Aer Lingus. A considerable drop in oil prices has provided a further boost to these airline stocks.
Andrew McMenigall, senior investment manager at Aberdeen Asset Management, says the main global themes this year are healthy corporate balance sheets and steady economic expansion. "Stock markets remain attractive in relation to other asset classes such as bonds," he continues. "Valuation metrics are undemanding at the aggregate level, considering the gap between return on capital, and the cost of capital is comfortably wide."
"Profits growth is still fairly robust, which in the normal course of events, should lead to higher stock prices."
However, he warns that sentiment is a major factor, and should inflation refuse to subside then equity markets may stumble. Certainly in the short term market
momentum is stretched, McMenigall says.
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