PBI speaks to some of the world’s leading private banks who have stated that investment in equities is on the rise, suggesting wider implications that the global economy is improving. Holly Parmenter reports.
Johan Jooste, the head of UK investments at Julius Baer, said client appetite for equities has gone up by 5-10% in the past 12 months in the average balanced portfolio, with risk tolerance increasing: "We are advising clients to be more willing to take on risk. Since the recession, equity risk has been lacking but we are now seeing a return of clients wishing to take on higher risk to increase returns."
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Jooste highlighted the dramatic rise in the S&P 500 as an example. Global equities edged up to their highest levels for nearly six years as the S&P 500 index reached a fresh record high this week. The FTSE All-World equity index was up 0.2%, it’s highest since early January 2008.
The recent upward momentum for equities has been boosted by the view that economic growth is in a position to support corporate earnings and for central banks to maintain an accommodative policy stance.
Joster Avest, head of international markets at ABN Amro Private Banking, said he was seeing a definite rise in global equities: "We are certainly seeing uplift, with clients looking to gain more exposure to equities. In the last six months we have seen a substantial rise as clients look for higher returns."
UK Stocks peaked for a fourth day this week, extending a five-month high, as BP Plc posted earnings that excelled against analysts expectations, while the Fed begun a two-day meeting. The FTSE 100 index added 48.9 points, or 0.7%, to 6,774.73 at the close in London, its highest level since May this year.
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By GlobalDataGlobal equities edged higher ahead of word from the Federal Reserve on the future of its stimulus program. The Dow industrials and S&P 500 closing at their highest levels ever, continued expectations that the Fed, at the end of its policy meeting on Wednesday, will keep its $85million monthly bond purchases intact.
Commenting on the estimations of the Fed, Alan Higgins, Chief Investment Officer at Coutts, told PBI: "The Fed is much more dovish than the market was expecting, and even more than our own relatively dovish forecast."
Higgins added:"Bad news is good news for equity markets – in the sense that any weak data reinforces the outlook for rates to stay low for longer – as long as there isn’t any significant deterioration in the earnings outlook. Earnings and dividend yields are very attractive versus other asset classes."
This week asset management firm, Russell Investments, released its latest quarterly outlook for the global capital markets, predicting modest gains for equity markets and higher bonds yields in 2014 as the world’s major economies continue to grow.
Russell’s strategists continue to favour equities over fixed income, and they remain moderately positive on equity markets globally. Looking regionally, the strategists continue to prefer European equities over US equities, and they believe emerging market equities look increasingly more positive, possibly offering double-digit earnings growth in 2014.
Jooste added: "Many banks are seeing the shift away from fixed income to the equities markets. Fixed income is no longer so much junk bonds but higher grade. The yields are low, at a level that is not really worth investing in."
However, Blackrock released a report this week stating: "After five years of the sweeping economic crisis most investors worldwide remain risk averse holding a sizeable percentage of assets in low-or no-return cash investments."
Most people are not comfortable taking on more risks to achieve better return, according to Blackrock’s global survey- one of the largest ever, spanning 17,567 investors including 4,000 Americans, across a range of income levels.Blackrock described results as a reflection on a global investment environment that is ‘still plagued by uncertainty, policy confusion and political dysfunction’.
Jooste disagrees:"Things are better and people are getting more tolerant to volatility. The US budget stories, policy moves in Japan and a new political party in China, with capital market capitalisation, have helped." However, Jooste said: "Obviously, you still have to be selective and think about diversification.
It’s not a stampede, but there is a willingness to add in equities which is new," he added.
Asian stocks also rose this week, driving the regional benchmark index toward the largest back-to-back monthly advance since February last year. Profit climbed at Daiwa Securities Group Inc. (8601) and China Petroleum & Chemical Corp. Asian companies are benefiting from the regions robust medium term economic growth and earnings will continue to grow.
Upon the release of this article, India is enjoying a ‘stunning rebound’ as Raghuram Ragan, the governor of Reserve bank of India, made the decision to raise interest rates sending equities nearly 2% higher. The benchmark Sensex index closed at 20,929, just a fraction below its highest ever closing, set last week.
