Asoka Wöhrmann said the old adage ‘sell in May and go away’ was unlikely to apply this year, adding that stock markets would rise upwards, but in a bumpy fashion in light of the expected rise in interest rates.
The risks for equities are limited, he said, with the Ukrainian crisis and eurozone fears weighing on markets, adding that leading indicators were pointing to accelerating economic momentum in Europe and the US.
As the Fed continued its tapering programme of asset purchase, expected to end by the autumn, low interest rates may come into focus.
End of en era
“If they rise, bond yields should continue to increase. As a result, 2013 and 2014 could go down in history as the end of the 30-plus bull market in bonds.”
As such, he said many investors were shifting out of bonds into equities, causing stock valuations to climb, but believed they were not yet overvalued.
Moreover, higher growth is likely to trigger an increase in corporate earnings. The so-called ‘smart money’ should underweight bonds that offer lower yields at higher risk – and place its bets on stock.”
While DeAWM said it expected the eurozone to grow by 0.9% this year, it expressed concerns over the divergence of growth rates across the region.
Germany was expected to expand by 1.5% in 2014, Spain by 1%, France by 0.5% and Italy to grow by 0.5%.
Meanwhile Germany's inflation rate was 1.1%, France showed 0.7%, Italy 0.6% and Spain 0.3%. Greece on the other hand showed a decline in prices by 1.5%, all compared with prices at the same time last year.
But negative inflation does not mean that some countries on the periphery are entering a deflationary crisis, he explained.
Falling production can fuel growth
"First, falling commodity prices produce both a lower inflation rate and a rise in purchasing power. Second, regional differences in inflation rates signal that the process of adjustment needed to deliver an economic recovery is intact. Falling production costs can result in lower inflation in the periphery countries but also greater competitiveness. This, in turn, can fuel growth."
Investors may be returning to emerging markets, judging by capital flows, but Wöhrmann said he was favouring those EMs which have less dependency on commodity prices, with strong fundamentals.
