Burgess, chief investment officer, asserts that despite anaemic growth and faced with a “tidal wave” of developed world quantitative easing, investors ultimately have nowhere to go other than equities, not least because of the yield pickup.
“It should perhaps come as no surprise that in nearly all regions of the world, the income and higher-yielding strategies have been the best performing,” he said.
“As long as the central bank taps are turned on I expect this trend to continue”.
Burgess labels the recent policy initiatives introduced by the Bank of Japan as the latest in a “long and bewildering” chain of events as central banks attempt to offset the deflationary forces brought about by deleveraging and austerity measures.
“Having been hitherto staunchly conservative, investors are rightly stunned at the scale of Japanese QE, where the central bank has started a programme of stimulus on a massive scale,” he said.
“Where the Fed may have surprised investors initially with its programme of $85bn a month, or 7% of GDP, the BOJ have trumped that with its programme of 15% of GDP, an unprecedented move. This will see it buying 1.6x net supply, completely and deliberately crowding out traditional investor and swamping the markets with further liquidity.”
While the banking system in the US looks to be better capitalised and well-placed to fund credit expansion of a growing economy, Burgess warned that confidence is yet to truly recover with the latest stagnant job statistics suggesting slowing growth.
Globally, while equity markets have performed well this year, Burgess pointed to earnings revisions that have turned negative and growth prospects that have been downgraded, both for corporates and for sovereigns.
He added: “Within equities, cyclicals have underperformed defensives, emerging markets have underperformed the developed markets and commodities have been under pressure. It doesn’t feel like the backdrop to positive equity returns”.
