Asset manager upbeat on stocks
As stock markets continue to set record highs, equities remain the place to be for investors — at least in the near term.
That is the assessment of Hilary Wakefield, EFG Asset Management's head of portfolio management in the UK.
He believes a market correction, possibly a 5 per cent pullback, will happen, but that is no reason not to be investing in equities at the moment.
And he said when inflation starts to rise it will be the clearest bellwether that market conditions are also about to change.
Mr Wakefield, who has more than 35 years of experience in investments, presented his views when he spoke to members of Hamilton Rotary Club this week.
Referring to the market outlook he presented to Rotarians in November 2016, Mr Wakefield said: “We said last year to buy equities and emerging markets. We have not really changed, the cycle is not over yet.”
He said the cycle would end when short-term rates move up “quite sharply and the whole yield curve flattens”.
Mr Wakefield added: “That's when you need to get worried, not now. I think that is a couple of years away.
“Next year will be okay. We need to be worried when inflation starts to rise. When inflation starts to pick up, then the central banks are going to get worried, then you are going to see interest rates start to rise.”
That in turn will cause a slowing of economic growth, which would give reason to be concerned about equities.
Equities have risen by about 20 per cent this year. Mr Wakefield feels there is room for further upside, and pointed to strong third-quarter results from the likes of Amazon and Facebook.
He said: “I'm not that worried about next year. We will get a correction, markets will come back 5 per cent. I don't have a problem with that, I'm still a buyer.”
Mr Wakefield said the economies of the US, Britain, Europe and Japan had diverged since 2013. Then, last year there was non-inflationary growth.
He said normally the economy would “suck up” excess liquidity, but that liquidity instead had gone into equities, bonds and high yields.
“We still have plenty of liquidity in the system because there is not a lot of inflation.” The economies of the US, Europe and Japan are now mostly back in sync, with Britain lagging. Other economies around the world, including Brazil, China and Russia are enjoying growth, adding to the synchronicity.
Mr Wakefield said worldwide growth will probably get close to 3.8 per cent next year. He also said the market is always right, and the market “is telling us that growth is going to come through strong next year. We are getting a much more synchronised recovery going into 2018”.
Equity markets are flushed with liquidity in a large part due to many years of quantitative easing by central banks. While the US Federal Reserve has now begun the process of normalising its balance sheet, the European Central Bank is still buying bonds at a rate of €60 billion a month, and the Bank of Japan is continuing its massive QE stimulus programme.
Looking at the US, Mr Wakefield said the choice for the next Federal Reserve chairman would have some bearing on the stability of equity markets. The announcement could come as soon as today. Jerome Powell and John Taylor are viewed as the front-runners to take over from Janet Yellen.
Mr Wakefield said Mr Taylor was likely to raise interest rates faster, with the dollar going up and equities probably going down. He said if Mr Taylor is appointed, investors can expect a bit of market volatility.