Speaking in London on Wednesday, Gardiner said he expects the global economy to muddle through on an upward path and said, in the current climate “most of the opportunities are in equities, despite six years of the strongest recovery we have ever seen”.
The primary reason for this, he said is the expectation that the US will continue to grow on the back of a continued, healthy financial surplus.
“Such a cashflow surplus means that it is a net provider of funds to the wider economy, not a user of external liquidity. Gross borrowing is reviving – talk of a “Great Deleveraging” was always premature in this respect – but as yet there are few signs of excesses warranting another retrenchment,” he said, adding that the US remains, by a mile, the most important economy for capital markets.
The second reason is the fading of the headwind posed by fiscal austerity, particularly in Europe.
The third reason is the huge wealth transfer from oil producers to oil consumers caused by the sharp falls in oil prices. While not immediately apparent in the bottom lines of large companies, this fall will eventually result in a net boost to spending, Gardiner said.
The fourth reason to be positive on growth is the improved competitiveness of Europe and Japan as a result of their weakened currencies.
“The corresponding competitive loss in the US and UK is more than offset by their stronger domestic spending,” Gardiner said.
As a result, he added: “The ongoing muddle through suggests a dislocation in corporate profits is still unlikely. Growth is no guarantee of rising profits but it’s as good a guide as any to the likely direction of travel. And if companies don’t disappoint significantly, today’s stock valuations are plausible.”
