Rallies in equities worldwide are likely to continue next year, especially for technology firms, as global monetary easing would lend support to markets that have grown increasingly accustomed to uncertainty, UK asset management firm Schroders PLC said.
The world is in the late phase of the longest expansionary cycle on record without evident risks of recession, although the pace of growth is quite small, Hong Kong-based Asia head of multi-asset investment Patrick Brenner told a news conference in Taipei on Wednesday.
It was the seventh time Schroders unveiled its annual predictions of the top-10 investment trends for the subsequent year. It scored a 60 percent accuracy rate for its projections made last year.
The world is entering a new era of uncertainty, but the effects of geopolitics seem to be fading, with markets reaching a state of being uncomfortably numb, Brenner said.
He cited as an example the Shanghai Composite Index, which has remained relatively resilient against twists in US-China trade negotiations.
Uncertainty and low inflation allow central banks worldwide to conduct monetary easing — through interest rates and balance sheet expansion — to support economic growth and some liquidity, hence flows to equity markets across the world in pursuit of better returns, Brenner said.
Against that backdrop and with the MSCI All Country World Index demonstrating a 17 percent gain to date this year, Brenner recommended taking long positions on equities next year.
In November last year, he accurately predicted that stock investment would deliver positive returns this year.
“The liquidity-driven rally should continue, aided by corporate earnings growth,” Brenner said, adding that the US’ tech-heavy NASDAQ would fare better than the S&P 500.
That is favorable for Taiwanese technology companies, as many are in the supply chain of global technology brands.
Contrary to the US Federal Reserve, the European Central Bank and the Bank of Japan have less scope to cut policy rates after holding them at zero, Brenner said.
As the search for income continues, Schroders threw its weight behind emerging stocks rather than European shares, saying that Europe is stuck between a rock and a hard place, while emerging markets have more wiggle room.
Brenner suggested that investors go long on the US dollar and gold, as global capital tends to take shelter in the US dollar during a recession, while gold is a safe-haven hedge with falling opportunity costs.
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