CIO Tony Broccardo is underweight uk and us but positive japan
Even though equity markets are approaching three-year highs, Tony Broccardo, chief investment officer at F&C Investment, believes this is still the time to invest in the asset class.
He said: "This year's decline in bond yields has left them looking expensive and vulnerable to any improvement in the economic outlook. We anticipate US manufacturing and employment data to surprise on the upside. We are expecting equities to revert back to the top of the trading range they occupied earlier this year, with Japan and Europe set to perform positively."
In Europe, Broccardo thinks three factors are encouraging positive equity positions. There has been a pick up in M&A activity, share buyback programmes are continuing and there is a trend towards higher dividends. Sectorwise, he is positive on telecoms and pharmaceuticals.
For Japan, F&C remain overweight in real estate, financials, City banks and retail and positive on selective resources. However, Broccardo warns that Japanese equities still face risks such as the rising oil price. Despite recent disappointing performance, the picture is improving and he remains broadly positive on Japanese equities.
F&C is underweight the UK, due mainly to concerns about consumer debt, although Broccardo believes spending is unlikely to collapse as long as salary growth stays reasonable. The overvalued housing market poses some concerns. Broccardo thinks the one section of the market offering good value going forward will be large cap growth.
F&C remains underweight US equities. Providing US rates stop rising later in the summer, the current downcycle could bottom out early next year, according to the group.
Overall on equities, Broccardo, said: "In the short term, we expect equities to outperform bonds, and the asset class looks more attractive in valuation terms. While a major equity rally seems unlikely, there are several factors leading us to believe the situation could improve and buying opportunities created."
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