There are mixed opinions on how the global equity markets are performing. Although much of the unce...
There are mixed opinions on how the global equity markets are performing. Although much of the uncertainty surrounding the outcome of war in Iraq has been removed and oil prices have stabilised, the bear market continues.
Japan is in the doldrums. Europe is suffering because of the restrictive policy framework set out by Maastricht, but also has opportunities for growth. The US has cut interest rates and taxes to create a stimulating environment. But China remains the real growth story.
Peter Lucas, global investment strategies and director at Ashburton, says: 'In understanding the outlook and why equities have been poor, it is important to understand what has happened over the past three years.'
According to Lucas, the main reason equities have underperformed is still down to the bursting of the technology bubble. There was too much borrowing and in March 2000 this ended. Since then companies have been forced to reduce the level of borrowing and lay off staff.
Lucas thinks that now the uncertainty of the Iraq war has been removed, from here it is a restructuring story. Companies are recovering from corporate debts and are less at risk of downgrades. Oil prices are now at more stable levels and will remain at the low to mid 20s.
Tony Dolphin, director at Henderson, says the war in Iraq and oil prices have also been his main concern. From a company perspective, decisions were delayed due to the war and firms have not been spending money or hiring. It is possible this activity could begin again.
Lucas says: 'The policy framework remains stimulative for the equity environment. The US Treasury has been quick to cut interest rates and is looking to reform taxes. This should mean the equity market should have less downside risk.'
At Framlington, Neil Birrell, chief investment officer, says: 'We have seen a significant change in the US recently with growth stocks starting to outperform for the first time in two years. Growth stocks outperformed value stocks during the sharp rise in markets during March and this has not happened at any other point during the bear market.'
Dolphin sees growth stories in the US, Europe and UK. He thinks all three are being driven by similar dynamics.
However, Dolphin sees more opportunities in Europe as this region has suffered the most and is likely to bounce up when the economy improves. The ECB also has more scope to cut interest rates than the US.
He says: 'It is important to remember we are in a different economic cycle and companies have kept control of costs. We are looking for companies who show decent earnings growth and are not focused on sector bets.'
For Framlington, the main concern in Europe has been in the financial sector. This is due to the exposure to credit derivatives. It is difficult to quantify a company's exposure to these instruments and it is impossible to assess risks.
Lucas sees China as the big growth story. The country has had rapid industrialisation and has become an important producer of global services and exports. He thinks the impact of the severe acute respiratory syndrome (SARS) virus is priced into the market, but it is difficult to know the full effect of the situation.
He sees Asia as good for the longer term. The smaller Asian countries will also do well as they are restructuring.
Birrell says: 'Technology stocks in Taiwan and China stand to benefit from the development of wireless LAN. This new 4G technology enables users to use the internet and email from hotspots that install the system without having to physically connect to telephone lines.'
Dolphin thinks the SARS outbreak has presented a buying opportunity in Hong Kong. The underlying dynamic opportunity in the region is positive, the structural problems have been tackled and China has had impressive growth rates. The main impact will be on the tourism and airline industries.
He says: 'Property looks attractive and has fallen a long way. Once the irrationality has stopped and people realise there are a lot more diseases that people die of than SARS, investments will start looking attractive.'
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