Investment Comment June 2013
6th June 2013
It was inevitable there would be a wobble in the stockmarket after such a strong performance. A combination of worries about when the Fed will start reducing their quantitative easing programme, volatility in the Japanese stockmarket due to weakening data from China and an increase in the yield of Japanese Government Bonds triggered the weakness.
We think Japanese companies are well positioned to export to US consumers and will benefit from the strength of the dollar. We also think that growth in their domestic economy will improve and that will benefit Japanese equities.
In the US, evidence of recovery in the housing market and policies favouring growth should support further strength in US equities.
Even in the Eurozone, economic conditions are moderating and European equities have the scope to perform well as corporate margins recover from cyclical lows.
Commodities have been hampered by the strength of the dollar and the slowdown in China, and this is likely to continue for a while. Global property, on the other hand, is benefiting from low interest rates and the improving availability of credit in countries such as the US.
Valuations of equities as a whole still look reasonable, as profits and dividends grow. In the UK, we are in the recovery part of the economic cycle, and investors continue to look for income yield and growth opportunities. Investing in higher yielding companies that are able to increase dividends has worked well recently, and should continue to do so. As the recovery gains momentum, more cyclical companies that can improve their margins may start coming to the fore.
Overall, we think it is likely that the bull market has further to go. As always, it is important to have a balanced portfolio, invested in all the major asset classes, in line with your objectives and attitude to investment risk. Any changes in asset allocation should be gradual, because of the difficulty with precisely timing the markets.