Global managers are underweighting the US equity market while overweighting Europe. There has been a...
Global managers are underweighting the US equity market while overweighting Europe. There has been a change in the momentum of growth from the US to Europe, and the US economy is in a slowdown compared to the European economy, which is still in the early stages of economic growth.
Frances Wilson, investment manager at Ashburton, says: "The US is on track for a softlanding, which will avoid the need for further interest rate rises. For the US bond market inflation is not a problem, whereas productivity is in-creasing, which is beneficial."
But traditionally August has been a poor market for equities and Wilson does expect high volatility of stocks. Although Wilson predicts there could be a lot of performance in the stock market for the last quarter of this year if interest rates do not increase and also because it is a US presidential year.
"For Europe the situation is good and inflation is not a problem. The high unemployment rates have created a less tight market, compared to the US and the UK. So it is unlikely there will be excess wage demands which could push up inflation," says Wilson.
But he adds: "Asia has still not recovered from the 1998 crisis and while the economy has returned to growth the structures are not in the place to make the Asian economy stronger. Thailand is still in the midst of a banking debt problems."
There are also high levels of corruption in Asia, foreign capital is no longer being injected into these countries and banks are no longer sufficient in capital due to poor liquidity.
Wilson adds that Japan also has a large debt problem and that the banks have not made provisions for loans made. There is a low level of stimulation on the domestic front, with consumers fearing economic uncertainty and saving rather than spending. The government is no longer supporting companies in financial trouble and people in the short term are concerned about their future.
Guy Monson, investment director of Sarasin, warns that, on a global market scale, the main worry will be for telecom, media and technology stocks, sectors, all of which are set to undergo a major re-evaluation.
He says: "There will be a gradual relocation to retailing, building materials, financial services and industrial and chemical companies. Oil stocks are favourable, but investors are not convinced oil is here to stay."
Monson adds: "The retail sectors are extraordinarily good for money. They are learning to live with deflation and electronic competition, while telecom firms are facing increasing concerns over taxation, regulation, costs of licences and the dotcom companies are being sold off."
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