While it says progress ‘could be quite slow’ it believes global growth will offer sufficient support of the asset class to justify a continued overweight position.
The firm said that even the ‘tentative signals’ of a monetary policy change in the US and UK such as rate rises, are being framed in a language that is still hugely supportive and highly sensitive to any market overreaction, which bodes well for equity investors.
Geographically, Japan remains Barings’ favoured market as it considers it is cheap relative to peers and earnings growth expectations are ‘well underpinned.’ The BoJ’s ‘nerve was tested’ with a recent sales tax raise but so far the data has justified their stance, Barings said.
Barings is also welcoming of present ECB policy. It said Mario Draghi is doing an ‘excellent job’ in making the ECB much more pragmatic central bank. While in the US, the firm’s view is that the Fed wants to keep the present low rates on hold until well into 2015.
One note of concern for Barings is in the UK where it says Bank of England governor Mark Carney is risking undermining his own forward guidance policy on interest rates by suggesting an earlier hike is possible, and his hand may soon be forced by the data.
“We acknowledge though that market valuations have already seen a huge rise over the past eighteen months and while the outlook for corporate profits is for modest growth, it is difficult to justify another leap in valuations,” said Percival Stanion, head of asset allocation. “So progress from here in equities could be quite slow, even if it is still ahead of other asset classes,” he added.
