The global economic recovery is underway, but the process is fragile and will probably be led by the US, says a leading merchant bank.
Barings say is that recent tax rises and further fiscal negotiations are hampering the rate of the US recovery, but they are predicting stronger growth in the second half of this year.
However, they raise question marks over the performance of markets in the emerging economies because they say there are still too reliant on demand from the West.
Japan is predicted to perform well this year and, Barings notes that the US is tolerant of the Japanese drive to weaken the yen which will help boost their exports.
In a report, Barings said: “We are less sure whether the plan will work, but we expect Japanese equities to perform better given the authorities’ commitment to manipulating a weaker yen and boosting a flagging domestic economy.”
Their assessment also casts doubt on a recovery in the Eurozone due to political handicaps and they have ‘little enthusiasm’ for economic recovery in the UK, though they highlight that a weaker Pound would benefit the country.
Emerging market profits
Economies around the world are slowly struggling to grow and investors looking for profits should focus on emerging markets, according to a study by asset management firm BlackRock.
Russ Koesterich, chief investment strategist at BlackRock, says that the US is slowly overcoming economic hurdles, as is China, but he predicts another poor year from Europe’s economy, and that includes Germany.
However, he notes, the US recovery will not pick up until the second half of this year and until it does so, he says investors should make the markets of the emerging economies an important component of their portfolios.
He said that several markets in emerging economies benefited strongly from economic growth and pointed to US technology, energy and materials sectors which generate a third or more of their sales from emerging markets.
BlackRock is predicting that overall global growth will improve this year, thanks mainly to a resurgent China, though the path will not be smooth and investors should expect several ups and downs before economies settle down and grow around the world.
Awash with cash
One investment manager is saying that so much cash on company balance sheets now is a good time to invest in big firms since equity values are at an historic low.
Lars Kreckel, an equity strategist at Legal and General, says that when the financial crisis hit, many corporate balance sheets had not stockpiled enough cash to cope.
However, he says this situation has now changed and the balance sheets are looking relatively healthy with record amounts of cash held.
He points to Apple’s £91 billion cash stockpile.
He says this is just the tip of the iceberg and that for many US non-financial corporations cash and short term liquid securities make up around 15% of their total assets – the highest for three decades.
This has led to calls from investors to either invest the money accumulated or return the cash to shareholders
With equity values at record lows it could provide an investment opportunity as many firms look to give the cash to their shareholders and if they don’t, says Mr Kreckel, we will see a huge increase in the number of merger and acquisition deals.