A world of opportunity
After an ugly start to 2016 global equity markets are set to benefit from a "good" market correction, Columbia Threadneedle, global chief investments officer, Colin Moore believes.
Moore said that while global markets had been shaky since the start of the year, many key factors were in place indicating that the volatility had the potential to be positive.
"I believe we are experiencing a ‘good' correction," he said. "Investor expectations of growth were too high given demographic trends, the transformation of the economy in China, and significant geopolitical risk.
"I am modestly positive about risk assets. Investors are concerned that rising rates are bad for equities.
"They may be, although I think 10-year Treasury yields rates may be flat or lower versus current yields at year end.
"Even if they rise modestly, it may be positive for equities as expectations of economic growth and inflation will have increased, thereby reducing risk premia.
"I believe the reduction in the market risk premium will be greater than the increase in yields."
Moore's confidence has been boosted by corporate earnings being at twice the levels seen in 2008, and are backed by "substantially higher capital bases", while consumers are also in a healthy position.
While optimistic about the opportunities in global equities, Moore said that investors may be best served by looking at "sectors and individual securities rather than broad markets".
"The sell-off is evidence that markets are not cheap. Outside of emerging markets, valuations are not particularly compelling," he said.
"So while opportunities still exist for risk assets, I don't think we will be pursuing them via traditional allocations¬ It may come down to what we see happening within individual sectors where we think growth is sustainable or the stimulus of rising rates will have the most positive impact."
AUTHOR
Nicholas O'Donoghue
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