The global investment manager believes that international equity markets can continue to make progress into 2015, as long as policy errors are avoided and corporate profits expand.
The report highlights that the investment theme of sustainable yield is evolving into one of sustainable earnings expansion in many portfolios. The good news is that the House View remains confident about the ability of companies to generate positive cash flows into 2014-15. Together with current market valuations, this still suggests investors should remain exposed to riskier assets, primarily in equity and real estate. The bad news is that government decisions, especially about structural reforms but also fiscal policy and regulation, could periodically have a major impact on market sentiment, generating turbulence in the prices of many financial assets.
Andrew Milligan, Head of Global Strategy, Standard Life Investments, said:
“Forecasting the direction for financial markets is never easy, especially at turning points in the policy making cycle or when politics have a major effect on investor sentiment. We believe that 2014 will be a battle between economic fundamentals and political obstacles.”
“Equity markets can make new highs on the back of supportive policy and a continued economic recovery, although structural reforms are certainly necessary to prevent more economies sliding into secular stagnation.”
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