In our view, among the major asset classes current conditions continue to favour equity investment. A combination of low interest rates in the USA, in the UK, in Europe and Japan, coupled with falling interest rates in China, provide a favourable backdrop. This is not to say that issues do not remain, as clearly economic growth is not established in particular within the Eurozone. In China growth is slowing (to rates that are nonetheless very enviable when looked at through Western eyes) while it is possible, and even probable, that we will see initial very modest interest rate increases in the USA this summer and in the UK perhaps into 2016. Nonetheless monetary policy remains very accommodating from an equity investor’s point of view. We do however believe that care is required with equity selection, noting for example that a strong US dollar puts pressure on emerging market economies, while a weak Euro boosts the attractiveness of a Eurozone exports in a way that will perhaps not endure when Eurozone recovery finally emerges.
We remain concerned that the strong run that has been in place in Fixed Interest markets for very many years may finally be drawing to a close. The sector has been a huge beneficiary of a gradual fall in inflation and interest rates, trends that may now be close to, or in the case of interest rates, at an end. We therefore continue to remain underweight in this sector where income requirements allow.
In the UK, following the General Election the Chancellor is proposing to deliver a second budget in July. One imagines that this will remove any previous coalition partner’s influence that may have been exerted in the Spring Budget, and we will be interested to see what changes are made.