Battered share prices on world stock markets could rebound by the end of the year, according to a leading analyst.
Global markets are likely to improve and rally over the next few weeks, says Trevor Greetham, head of multi asset at Royal London Asset Management (RLAM).
He argues central banks will have to adjust monetary policy to counter a stuttering global economy and to boost domestic economies.
“The outlook for developed markets is positive,” he said. “Slowing emerging markets linked with a drop in commodity prices due to sluggish demand is dragging down inflation.
“Central banks of leading economies will have to make policy decisions to reflect this.
Equity clock
“Markets are likely to stay volatile for quite a while, but the confidence of investors traditionally improves after the summer and the banks really have no choice but to act.”
Greetham bases his analysis on an equity clock linking asset performance to movements in the economic cycle.
He saw the clock moving towards overheating as markets responded to inflation changes and speculation about US interest rates.
Now he says the clock is moving back towards a more investor friendly environment.
“Summer markets are thin and susceptible to shocks,” he said. “The big Chinese sell-off dropped into this period
“We see yields of 10% annually, but for May to September, this has been running around the zero mark but is heading towards a seasonal pick up.”
Bank rate stays pegged
Meanwhile, the Bank of England monetary policy committee has confirmed the official interest rate remains at 0.5% for another month.
“No one expected any change with the recent flurry of deflation, a slowing Chinese economy and the US Federal Reserve kicking an imminent rate rise into touch on the back of poor US employment figures,” said Maike Currie, associate development director at Fidelity Worldwide Investment.
Only one committee member voted for a rise, but he was outgunned by eight other committee members wanting to see the rate remained pegged at a record low.
“Everyone is waiting to see what the new normal interest rate is likely to be,” added Currie. “Wherever it settles, the rate is likely to be much lower than the average before the credit crisis.”
