Marcus Brookes, head of multi manager at Schroders believes we are towards the end of a powerful bull market in a lot of assets, while there are many other issues on the horizon. While the bond market now looks incredibly expensive.
The US equity market – which has been phenomenal – has seen the most powerful bull market in US history but can this continue?,” asked Brookes.
“On one hand you have China which could be an economic upset and on the other you have the US which could just be profitability declining and a bit expensive – either way investors should watch out,” he added.
Brookes’ hope for the market is that the ongoing recovery in the US economy stays on track, which, he said, would allow the rest of the world to “emerge from a period of tepid growth.”
He added: “the obvious beneficiaries from this would be the emerging economies, who actually appear to be turning around quite nicely.”
Asian impact
Meanwhile, the impact of China on Japan is something that worries Andrew Rose, Japanese equities manager at Schroders.
“This was a big part of the fear seen in the market at the start of the year. People have got more relaxed about China and that, at some point, might prove to be misplaced. So with this in mind the thing that keeps me awake at night is a possible hard landing in China,” said Rose.
Looking forward, Rose said that his hope regarding markets is that the trend towards greater shareholder friendliness in Japan is maintained in spite of a more difficult profits backdrop.
Policy plays
The third major worry on Schroders’ fund managers’ list is central banks.
“Policy responses are likely to become ever more aggressive due to limited global growth and investors are now wondering what the central banks are going to do next,” explained Matt Hudson, head of business cycle, UK & European equities.
According to Hudson, one possible scenario is that central banks become renationalised, meaning that independent policy making will be removed.
“Before this potential outcome raises its head there is likely to be an uncomfortable period, probably culminating in a crisis,” he said.
On a more positive note, Hudson is beginning to see some signs of a more stable period ahead, following a sustained period of pressure on the UK earnings base, leading to UK equities starting to deliver a better performance, especially against other global equity markets.
And while admitting that there are income challenges, Hudson notes that many companies will grow their dividends, particularly in value sectors such as banks and insurers.
“Underlying these themes we hope that there will be better balance between companies growing their real capital base and giving it back to shareholders via special returns of capital, which will result in a better balance between the needs of investors now and those in the future,” said Hudson.
