The stockmarkets of the world have done well so far in 2012. Equities are cheap relative to bonds in the US and the UK, and company earnings are growing. This is likely to lead to good returns from equities in the medium term, but there are clearly short-term risks as a result of the ongoing Euro Zone debt crisis.
Income from dividends is very attractive at the moment, and dividends are capable of increasing as company profits grow. Corporate bonds remain attractive, particularly at the higher yielding end of the spectrum.
We expect the US to do relatively well, with stabilisation of the housing market and signs of recovery in the employment figures. China continues to grow, albeit at a slightly slower pace than before. The rest of emerging Asia is also slowing, but a hard landing is not expected. Japan is struggling from the effects of the tsunami and the strong yen, but the stockmarket looks very good value.
Overall, it appears that a continuation of China’s growth and recovery in the US could offset recession in Europe, and as worries about the Euro Zone diminish there is scope for a significant rebound in the stockmarket. As always, the best approach is a balanced and well diversified portfolio.
Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.
