LONDON | Global asset manager Threadneedle pointed at liquidity operations carried out by most G20 governments as the primordial reason behind the recent rally that the equity sector has experienced.
“We see the LTROs, the recent £50bn extension to quantitative easing by the Bank of England and the ¥10trn increase in the Bank of Japan’s asset purchase scheme as activities that boost liquidity and are likely to increase demand for equities” Mark Burgess, one of the firm’s directors, said Monday.
Burgess explained that, although a pause for consolidation may be expected in the short-term, corporate results in the latest quarter of 2011 have shown sound profit margins while maintaining cash flows. He described current valuations as attractive on the medium-term, which is why Threadneedle has opted for keeping an above-benchmark position in equities.
At Threadneedle, analysts believe Asia and emerging markets are already benefiting from high levels of economic growth, above all in relation to developed economies. But were the signs of an approaching period of monetary easing right, they think developing economies would take advantage of it, too.
In Europe, the investment company favours UK equities despite noting the difficult economic outlook of the country.
“A high proportion of earnings come from more buoyant overseas regions, valuations are low and dividend yields and growth are currently running at high levels.”
As for the European Monetary Union members, the tone is mixed. Burgess admits the fund has become a little more cautious after a particularly strong recovery in prices. Despite progress on the Greek deal, Threadneedle reminds investors that growth in the euro zone will inevitably be slow for a long period due to strict austerity measures.
“The picture is less positive in the PIIGS markets. We have heard that businesses are still spending where governments cannot, so it’s not all bad news –one company we spoke to recently (whose product is B2B) spoke of 20% year-on-year sales growth in Iberia in Q4 2011, and only a small decline in Italy. In summary, at this stage it looks like […] global growth will probably tick along at around 2%, incorporating 1.5% growth in the US, -1% in Europe and 8% in China. The threat of deflation has been averted and, while inflation is a little elevated, interest rates in the West remain firmly anchored close to zero.”