Key risks and opportunities for investors in the second half of the year
Growth patterns in the major economies are noticeably diverging with the US further down the road to recovery, the UK turning the corner, the Euro zone stabilising at best and China and some other Emerging Markets slowing. This prompts divergent central bank responses with a slight tightening bias in the US, China and Brazil while Europe and the UK remain accommodative. Asset markets are responding with moves in currencies and bond yields followed by equities as the earnings environment evolves.
Amongst known unknowns on the political front are the elections in Japan and Germany. The former will demonstrate the extent of support for Prime Minister Abe’s policy initiatives, which have already had a significant impact on the markets for Japanese bonds, equities and currency. The latter will produce another (pro-EU) coalition, but the constituents will determine the stance towards market reforms such as banking union and the Financial Transactions Tax. Tensions in the Middle East and elsewhere remain a risk.
Frances Hudson, Global Thematic Strategist, Standard Life Investments
Published in Investment Week on 22nd July 2013