All of this suggests support for rising equity values, a trend encouraged by generally reasonable half year results that have been announced by companies in the UK and elsewhere in the last few weeks. Disappointments, for example BP where ongoing legal action following the Gulf of Mexico oil spill some years ago continues, have been very much in the minority while interim dividend increases have been common.
The importance of low interest rates in promoting increased economic activity is significant. As an example, I see that the Anglo Dutch consumer goods conglomerate Unilever has raised 750 million Euros on a seven year term at a rate of interest of just 1.75%. For Unilever, which is of course just one example, this surely represents a sound opportunity but there will of course come a time when monetary conditions tighten. It was fear of this happening sooner rather than later that caused a spell of market uncertainty earlier in the Summer and it is quite possible that the process of quantitative easing in the USA will begin to slow down as the year progresses. All of this leads me to conclude that the return for investors in fixed interest markets is likely to be restricted to the interest that such funds provide and that the trend towards rising fixed interest capital values has largely come to an end.
From an investor’s perspective, particularly given relatively high equity fund yields, I continue to lean towards overweight in equities at the expense of the fixed interest sector and cash.