News

As the end of the year approaches, we are beginning to look forward to 2014. In terms of the big picture, we continue to believe that equities will outperform bonds. Indeed, given the weak outlook for bonds, equities may not have to do much to accomplish this. At the regional level, all forecasts for economic growth in 2014, with the exception of Japan, are stronger than those for 2013. Global growth is expected to be 3.1% next year versus 2.4% in 2013. We believe equity valuations are fair and markets should make progress if corporate earnings estimates improve as we expect.

Within fixed interest markets, corporate bonds remain more attractive than gilts and strategic bond funds with a wide remit should be able to outperform other bonds. We are not particularly concerned by inflation, although Germany may be susceptible to wage pressures.

Within equities, we expect Europe and Japan to outperform, while prospects in the UK have also improved. The European economy is recovering; however, we need to keep an eye on the progress of reform in Italy and France and the bank asset quality review, which may be crimping lending. In Japan, further progress on the implementation of growth-enhancing policies needs to be seen after the recent lull. US equities have performed well and may be now looking pricey.

Our strategy bias in equities is towards small and mid cap stocks, together with a bias to cyclical sectors, including industrials, financials and mining. We continue to monitor the oil sector, which looks cheap on fundamental grounds