Equities will continue to offer better valuations relative to bonds – and recently volatility in equity markets should be considered as a correction and not a turning point, according to Russell Investments.
Russell said this view, drawn from its 3rd Quarter Strategists’ Outlook and Barometer, which assesses global capital markets on a quarterly basis means that equities will continue to outperform bonds and cash but margins are likely to be smaller than in the first half of 2013.
Russell Investments global head of investment strategy Andrew Pease said economic growth in the months ahead will be modest with Europe set to climb out from recession and Japan set to take-off due to the success of recently adopted economic policy.
However the report also projected steady growth for the United States over the next two years and forecasted the U.S. economy has sufficient spare capacity to grow without generating inflation pressures
“The gains in global equity markets and rises in bond yields mean that we head into the second half of the year with equity markets offering reasonable, but not outstanding value, and with bond markets less dangerously overvalued,” Pease said.
Russell also said that emerging markets would offer challenges in equity markets due to the strengthening of the U.S. dollar combined with falling commodity prices and general geopolitical upheaval in countries from Brazil to Egypt.
Russell Investments senior investment strategist, Asia-Pacific, Mr Graham Harman, said Asia-Pacific offers opportunities in Japan, China and Australia.
“Japan is experiencing strong GDP growth for 2013, and the Chinese government is prioritising reform over short-term growth,” Harman said, adding that the Australian economy still faces a slowdown.
“The overwhelming challenge domestically is to absorb the impact of a precipitous decline in resource sector-related capital spending, and to take up the slack in export growth, in housing, and in domestically oriented industries.”
