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PORTFOLIO PERSPECTIVES | ARTICLE – 2 Min

Equity outlook – Adjusting and coping

Daniel Morris
By DANIEL MORRIS 06.04.2022

In this article:

    Equity markets face a challenge in the form of significantly tighter monetary policy but the asset class should still outperform fixed income. In the current environment our preference is for equity exposure in markets with attractive valuations and relatively supportive monetary/fiscal policy, namely, China and Japan.



    Equity markets rallied into the end of first quarter 2022 as the worst predictions of how the Ukraine war might go were unfulfilled and investors placed hope in a negotiated solution.

    While markets seesaw on news reports, expectations for the level of central bank policy rates are moving higher as inflation repeatedly outpaces expectations. In contrast to the start of 2022, however, the corresponding rise in real yields has not led to an equity market sell-off. Our concern is that at some stage, the focus will return to the prospect of higher discount rates. The fact that GDP growth prior to the conflict’s outbreak was well above trend does provide some cushion for equities.

    Though rising rates will challenge equity returns, the asset class should still outperform fixed income. We prefer to take our equity exposure in markets with attractive valuations and supportive monetary/fiscal policy, namely, China and Japan.

    Disclaimer  

    Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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