The US economy is gearing up to drag the rest of the world out of stagnation as higher house prices, more jobs and rising wages stimulate growth.
A global market report from investment firm Schroders also highlights Japan and Britain as leading the way for the world economy.
Chief economist Keith Wade argues that Abenomics in Japan is boosting exports, which is feeding though to wage increases and better than expected growth in Britain in the first six months of 2013 are driving up house prices and will eventually bear down on wages as well.
The report also looks at other markets to see how they are performing:
Eurozone
The focus is moving away from austerity budgets to bring financial deficits back with manageable levels.
“This will support growth in the Eurozone, as we believe this turning the screw on some economies has dragged back growth in some countries,” said Wade. “The caveat is loosening budget controls has got to go hand in hand with better fiscal management.”
Wade warns that failing to do this could stress bond yields and send them back into crisis.
Emerging Markets
Schroders sees emerging markets as losing momentum.
China is showing strong growth – but credit growth is switching from supporting expanding new businesses to becoming a crutch for older, less well-performing firms.
“The fear is liquidity could tighten, slowing down growth even more,” said Wade.
He also explains that with the US Federal Reserve hinting interest rates may rise next year, bond yields in the States will go with them, sucking liquidity from other markets to the US.
Investment Opportunity
Best bets are Britain, the US and Japan, says Wade, as some markets adjust to higher bond yields.
Meanwhile, Lars Kreckel, Global Equity Strategist for Legal and General suggests not much has really changed in the markets.
“Regional performance is pretty much the same now some months ago,” he said “ US equities are showing better than those in Europe, while Europe is ahead of emerging markets. The big call for investors is to spot if and when this trend reverses.”
To support his argument Kreckel puts forward figures that show US equities have returned 26% in 2013; the UK and the eurozone have yielded 12%, while emerging markets have dropped 3%.
“This is not the general trend,” he said. “Regional yields normally swap places as markets rise and fall with more flexibility.”
