This year might be a better year for investors as market returns could be more positive following significant corrections in stock and bond prices last year, UK asset management firm Schroders PLC says.
Almost all markets, both stocks and bonds, fell in value last year, under pressure from rising interest rates, political developments such as Brexit, as well as the trade dispute between the US and China, Schroders chief executive Peter Harrison said.
There is likely to be more bad news as the trade dispute lingers and has the potential to damage economic growth around the world, he said.
Schroders economists expect a gradual slowdown in the US this year, but do not see a recession as being likely, Harrison said, adding that the forces that led to a strong year in the US economy are still in play.
The slowdown means that an end to the monetary tightening is in sight and interest rates of less than 3 percent are modest compared with past cycles, he said.
Schroders fund managers all point to slightly higher inflation this year as helpful to the companies that have strong market positions and the ability to raise prices.
Even in Europe, where growth has been disappointing, the income return from dividends alone looks more attractive compared with cash or bonds than has been the case for some time, Harrison said.
Weaker US GDP growth is also likely to lead to the US dollar losing ground against other currencies, and that is good news for emerging stock and bond markets, he said, as a strong US dollar sucks money out of these markets.
Emerging markets, including China, suffered badly last year and have a fair chance of recovery this year, the firm said.
“Our multi-asset team describes their valuation as ‘provocatively low,’” Harrison said.
The firm’s bond managers are not so comfortable about the bond market’s outlook, with central banks, which have been huge buyers of government debt and other bonds, steadily departing the market.
However, corporate bonds have become cheaper and would be supported by strong fundamentals if the US slowdown is limited, Harrison said.
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