Market outlook

Corporate cash is key to growth of risk assets in 2014

Standard Life Investments, the global investment manager, believes that global equity markets can move higher if corporate earnings come through and companies invest their war chests of cash.

Speaking about the latest edition of Global Outlook, Keith Skeoch, Chief Executive, Standard Life Investments said: “Risk based assets such as equities and real estate can make further progress given the positive economic momentum. However a key issue that will determine the pace of recovery and return will be the extent to which companies step up to the plate and put their cash balances to work in generating growth.”

He added: “A recovery in US business investment during 2014 will signify that the upturn is self-sustaining and raise confidence about asset returns. This could also be the year of the merger if a number of larger firms deploy their cash to buy up attractive smaller companies.”

The Global Outlook also states that financial markets are being tugged in opposing directions, on the one hand by an improving global economy, on the other by worries about policy decisions, structural reforms and politics. However, Standard Life Investments’ House View remains confident about the ability of companies to generate positive cash flows into 2014. Global equity markets range from fair value to moderately expensive which is justified by the currently supportive policy environment and expectations of better profits growth.

Standard Life Investments remains Heavy in equities and real estate, Neutral in credit, emerging market debt and cash and Light in government bonds. Favoured equity markets include the UK, US and Japan, reflecting our forecasts for better corporate earnings growth and domestic demand into 2014.

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