The last quarter has seen stock markets around the world rise and – more importantly – hold on to the gains.
At the start of the year there was a concern that the short-term fixes by policy makers in the US were likely to unravel and see stock markets slip back to the same levels of mid-2011. However the global economies have shown more resilience and so fund managers have been able to select stocks based upon their fundamentals which show good earnings in many cases.
In plain English, this means the current stock market highs are based upon common sense rather than pure sentiment.
As always there are a number of reservations:
- The US still has a number of legislative and fiscal hurdles to overcome.
- The UK is still battling to generate growth whilst attempting to reduce our debt burden.
- Europe is still moving from one crisis to another.
The effects of the Eurozone’s latest ‘solution’ to the Cypriot banking crisis have yet to be fully felt. For the bank deposit holders who could lose up to 60% of their savings there is obviously turmoil and dismay but on a wider scale it is worrying for other countries with mounting debt problems, such as Spain and Italy.
Whilst the Cyprus banking sector is less than 1% of the Eurozone and is unlikely to derail the rest of the Eurozone, the cuts in bank deposits sets a dangerous precedence and could cause a loss of confidence as investors move monies away from those Euro countries which are perceived to have a weakened or imbalanced economy.
For UK bank deposit holders there is a large amount of security in terms of our separate, standalone currency plus our regulation by the FSA and also the FSCS protection given to savers and bank deposits. It is worthwhile ensuring that any investment or bank deposit held is covered by these schemes.
Returning to investment markets – equities continue to show the greatest potential for growth. Gilts and sovereign debt is an asset class which continues to look overvalued so should be largely avoided. Corporate bonds and commercial property are still offering steady yields but do need constant review.
Overall our outlook is optimistic for investors and although there could be a few ups and downs ahead due to the global economies the long term is looking positive.