“Over the next six months we expect profits to be more top-line driven through sales than bottom-line driven through efficiency gains,” Port said. “Household income growth is the key and this looks to be on the rise. But there are speed bumps on the horizon for the US to navigate; the start of monetary policy tightening; entering the presidential election year; skirting the debt ceiling.”
Port’s confidence in the US does not mean that he is shunning other parts of the world however, with him also seeing Europe and Japan favourably. “Nutmeg is also backing the ongoing recovery of Japanese and European markets where policy makers continue to apply monetary treatment,” he said.
His views on Nutmeg’s home patch the United Kingdom is less rosy though. “While we expect the UK to continue leading the pace in developed economy growth, its equity market for larger companies will be adversely affected by weak commodity prices and weak emerging market growth,” Port said.
“So we favour middle-sized UK companies that benefit from local demand growth, even if that means the Bank of England needs to start raising rates soon. We don’t believe tighter UK monetary policy will derail the recovery; rather it will be a reflection of a return to confidence in household and business spending plans alike.”
Emerging markets are not attractive at the moment in Port’s view, due in large part to difficulties faced by two of the BRICs, China and Russia.
“Nutmeg is underweight in emerging markets on account of the two-speed economic environment, he said. “China and Russia are struggling to cement their place in the global system. China’s growth rate will continue to disappoint and the ineffectiveness of Chinese policy tools will become more evident in weak local financial markets.
“The lack of transparency in China’s policy response to its troubles will put its project to become more enmeshed in the global financial architecture at risk. This is certainly not the time to be adding local Chinese stocks to global equity benchmarks,” Port added.
