Investors can look forward to a period of relative stability this quarter – despite bleak warnings over the health of the global economy, says a leading global investment analyst at one of the world’s largest independent financial advisory organisations.
The upbeat observation from Tom Elliott, deVere Group’s International Investment Strategist, follows the International Monetary Fund this week highlighted risks of a new financial crisis.
Mr Elliott comments: “The IMF has painted a rather gloomy scenario. Whilst there are certainly risks, and there always are, I believe the second quarter of 2016 will be considerably less volatile than the first.
“There are three reasons for this. First, the U.S. Federal Reserve is far more emollient in its forecasts for U.S. rate hikes than it was three months ago, while recent economic data suggests continuing stable economic growth in America.
“Second, the much-forecasted hard landing for the Chinese economy has failed to materialise. At 6.5 per cent the economy is still growing at a decent clip.
“Third, a major source of weakness on financial markets in recent years has been the resources sector. But this is going through a period of period of self-healing. Certainly, it remains very susceptible to news flow from China regarding potential demand growth. But the over-supply issues that bedevil companies in the resources sectors are being addressed through the axing of new energy and mining projects, and closing of uneconomic operations. Companies are bearing down on operating costs, and less generous but more sustainable dividend policies.
He continues: “This is not to ignore the many worries that investors legitimately have, but it helps balance a diet of negative news stories that – like moths to a lamp – investors such as ourselves are always drawn to.
“Right now these include central bank policy errors, the significant non-performing loan problem that hobbles China and Europe’s banks, and fears of the impact of Brexit on the UK and European economy. Furthermore, this week sees the start of the second quarter corporate earnings season, which could be awkward for Wall Street.”
Mr Elliott concludes: “The solution, as ever, is to be fully diversified into risk-sensitive assets such as equities and credit, and into defensive asset classes such as government bonds. Longer term investors should have a bias towards equities, which have consistently outperformed bonds and cash over meaningful lengths of time.”