As we look towards the final quarter of the year, after months of macroeconomic uncertainty and geopolitical turmoil, Investment Adviser asks global equity managers what their views are on the main investment regions.
Michael Hunt, managing director of global equity manager VAM Funds
UK
We expect challenges to continue for the UK. The Bank of England’s policies are not truly well aligned with government policies. We believe continental economic stagnation will continue while the UK is probably stuck in short periodic cycles driven more by policy intervention than momentum in underlying fundamentals.
US
We see moderate economic growth continuing but do not anticipate significant further acceleration in activity. We look forward to the mid-term elections removing uncertainty. Disinflationary pressures should support expectations that the Federal Reserve will be slow to raise rates. Consequently, we expect investors to be rewarded by true growth companies and companies allocating capital most efficiently – toward large share buybacks or highly accretive brownfield expansion and bolt-on acquisitions.
Europe
Many economic and company indicators are moving two steps forward and one-and-a-half steps back. The equity markets will likely retain high interest rate sensitivity. We believe investors will be most attracted to companies offering good medium-term earnings visibility, fortress balance sheets that can be re-levered even in the current environment, and those in sectors undergoing positive structural change.
Asia Pacific including Japan
Our outlook for Japan is dependent on government action. The positive effects from 2012-13 yen weakening are waning. If additional policies are announced, Japan could be one of the best-performing equity markets in the second half of 2014. For Hong Kong and Singapore, we will witness a transformational event in October, with a government-sanctioned connection between the Hong Kong and mainland markets. Expectations are for mainland investors to chase ‘new economy’ stocks in Hong Kong.
Emerging markets/China
We expect second-half stock returns to be more related to corporate and economic fundamentals. Brazil has a difficult road ahead as GDP is disappointing for the third year in a row, but will be influenced by presidential elections. Mexico should begin to accelerate as it moves past difficult fiscal reforms. Investors must be very selective in the Eastern Europe, Middle East and Africa region due to risk from Russia-Ukraine and economic stagnation coupled with the commodities weakness that challenges South Africa.
Dylan Ball, portfolio manager and research analyst, Templeton Global Equity Group
UK
I think the monetary policy put forward in the aftermath of the global financial crisis has proved to be the right one recently. The fact that the UK economy recovered before continental Europe and has grown from strength to strength, certainly in the last couple of quarters, is a real indication that we are out of recession and processing to normalised growth. If 60 per cent of UK exports are to continental Europe, I think it’s credit to the economy that this country’s economic cycle can race ahead of its trading partner.
