A constructive environment for growth assets like shares and property is supported by modest global economic expansion, accommodative monetary policy and increasing fiscal support. However, several risks cloud the outlook so our portfolio positioning is more conservative than might otherwise be the case.
Key concerns are full asset prices, political uncertainties, high global debt levels, the potential for renewed concerns over China growth and the declining impact of monetary policy.
The equities bull market that commenced in 2009 continues, but the cycle is maturing. There is likely to be a series of market selloffs over the next period which will offer opportunities to add to growth-asset positions more cheaply. In readiness, we have built cash buffers in our portfolios.
Job growth the key to global expansion
Global growth remains subdued but there is continued improvement from the concerns earlier this year. Developed economy growth remains slow, challenged by excess capacity, modest productivity growth, constrained fiscal action and high sovereign debt levels. Employment is growing but wage rises are only slight because labour markets remain relatively slack despite declining working-age populations.
Emerging market growth is becoming more important to global conditions as large emerging markets like China and India continue to expand at well-above average rates. Emerging economies are recovering as recessions recede now commodity prices are bouncing and the US dollar is not appreciating like it was in 2015, stressing US-dollar indebted corporates and sovereigns. The likelihood of low developed market interest rates for an extended period creates a more benign environment for emerging market growth. The path of US rate rises appears more modest than it did a year ago.
In the US, the sharp rise in September 2016 manufacturing and services activity after a period of weakness indicates the economy is gaining momentum as the year progresses. Services activity, the bulk of the economy, continues robust growth. Manufacture has returned to growth after a period of contraction relating to weakness in the energy sector and dampened external sector following the 2015 rise in the US dollar.
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