“US equities have had easy gains, though they did not feel easy at the time,” he expanded. “A lot of the market strength has been put down to low interest rates, which cannot go on forever. There is still a lot uncertainty but this is just a pause in the market’s rise, and in a year or two it will certainly be higher than it is today.
“We are in a direction and quantum of travel that means we will be in a low-inflation and low-growth global environment. With interest rates staying low, yields on bonds are very de minimis while companies can continue growing, and even in a low-growth environment equities can grind higher. If we get 5% per annum on equities it will be a reasonable return in the economic environment.”
With this outlook in mind, having reduced his emerging market weighting incrementally to 2.7% in August, Walker believes that once the waves from the initial interest rate hike have settled there could be some opportunities cropping up in the developing world.
“Emerging markets will be hit the most by the first interest rate hike. I am not a seller at the current levels – some stocks are quite cheap and it is too late to sell – but once the first rise of 25 basis points or so has arrived that will be the time to start putting money back into emerging markets.”
