We are now seeing an increasing divergence of approach to monetary policy across the world’s leading developed economies in that quantitative easing came to an end in the UK some while ago and it is now concluded in the USA. However in Japan, the QE programme has recently been massively increased (as part of a wider range of measures) while the introduction of QE within the Eurozone, to complement existing moves aimed to reduce the risk of deflation, appears to be increasingly possible. It looks as though interest rates may begin to increase a little in the USA at some point next year, which may also happen in the UK if economic growth continues to pick up at a decent pace and if inflationary indications remerge, which is not the case at present.
At this point it is worth noting that interest rates in China, Russia and Brazil for example are all very high as compared with those ruling in the developed economies, reflecting specific concerns with, in China for example, the need to curtail the rapid growth that has taken place in levels of debt seen in the last few years.
All of this continues to provide an uncertain backdrop for fixed interest investors in that at some point it is likely that greater volatility in the value of such investments will return although the timing is uncertain. While 2014 has produced a better result in this respect than most originally anticipated, the longer term concerns have not gone away.
In equity markets, where we generally maintain an overweight position, the growth in activity in the world’s leading economy (the USA) is clearly significant and while within the Eurozone there are issues to be faced by governments, opportunities for companies to deliver solid performance remain. In the UK, we are entering into a period of some political uncertainty in the run up to the general election: we are however now at that time when companies report on their performance for the nine months to end September and although dividend growth has slowed, much as expected after several years of strong growth, and while there have been some disappointing results, there have also been a number of pleasant surprises. After some volatility towards the end of last month, I believe that UK equities represent sound long term value. In the round, diversification within portfolios remains most important.