Global Equities to Continue to Beat Bonds

MARKET SNAPSHOT: The post-crisis recovery has several more years to run, and though bond yields will likely head higher they should still be beaten by global equity returns

Andy Brunner 7 July, 2015 | 1:53PM

Despite a difficult start to the year for the US economy, strong global growth is still expected in 2015, led by developed markets. Continuing low interest rates and inflation, accommodative monetary policy, better credit conditions and improving business and consumer confidence, alongside the boost provided by lower oil prices, is a backdrop that should encourage faster and sustainable developed market growth.

While the current economic cycle may feel long in the tooth, the whole mid-cycle phase produced growth that was well below trend, such that no major economy has delivered even one year of strong growth since the first year of recovery. Given these conditions it would be a surprise if the economic cycle came to a halt now and it should have several years to run. This is a view shared by most central banks, which are pulling out all the stops to foster stronger growth.

Inflation is not a major issue as yet and debt levels, while worrying, are more an impediment to growth rather than a likely cause of another financial crash. One area of concern is high valuations both in bond markets, despite the recent yield back up, and in US equities, which provide little margin for error. Of course, there are also near-term issues, including a possible “Grexit” and a rise in the Fed funds rate, both of which are creating some anxiety and volatility.

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About Author

Andy Brunner

Andy Brunner  is Head of Investment Strategy, Morningstar UK

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