In a précis of a forthcoming report due out next month, entitled ‘Vision 2014’, Investec W&I has predicted 2014 to be the first year in seven that the world’s dominant economies will show simultaneous growth.
The report will suggest that equities are in for a strong run with upside earnings surprises driving markets and the trend will be seen across global markets including North America, Europe, China, Japan and the emerging markets.
New cycle of M&A
Head of investment strategy John Wyn-Evans said in spite of widespread belief that Europe and emerging economies, its report shows companies in rude health and on the brink of a new cycle of mergers and acquisitions. He forecasted concerted growth in all major regions would lead to low double-digit earnings growth.
“With leading indicators such as business sentiment measures nudging into positive territory, this fertile ground looks ready to bear fruit,” he said.
Wyn-Evans said equities no longer offered the “bargain basement valuations” seen in recent years, with prospects more dependent on near-term earnings growth.
In terms of the synchronised upturn, Investec W&I said the greatest tension would be between growth and the potential withdrawal of liquidity by central banks.
“If risk assets have re-rated upwards on the tide of surplus money, it is only fair to expect some payback.
“The key will be for earnings to grow faster than equities could possibly de-rate. In any event, rising earnings and dividends should assure better total returns from equities than bonds.”
Europe not out of woods
Wyn-Evans said in spite of rising bond yields, equities had outperformed fixed income for every relevant investment period from one to 30 years, and he expected this support to continue.
On Europe, he remained positive, though admitted ongoing systemic problems in Greece and Portugal meant the continent was not yet out of the woods.
“We believe that most investors were far too gloomy on a European recovery. We continue to think this is the case, with a particular eye on the potential positive impact of an unshackling of the European banks’ lending capacity once their regulatory reviews are finally completed.
“Closer to home, the UK has surprised everybody with its strength, and promises to be one of the fastest growing economies amongst the major developed countries.”
