Our outlook for the major asset classes did not change significantly this month.
Our outlook for the major asset classes did not change significantly in June. The most positive opinion we hold is on equities, while we remain cautious about the outlook for bonds. We maintain our view that the latter are expensive, and their prices could fall if central banks raise interest rates. Higher rates usually cause bond prices to drop, because the reward for saving cash increases, and the fixed income that bonds provide looks less attractive in comparison.
We think that global growth is likely to continue to strengthen, which should have positive implications for share prices, as increased economic activity and consumer spending is good for company profits. When companies are making decent profits, they are more inclined to pay dividends to shareholders, and that tends to make shares more attractive.
Gradual, well-timed increases to interest rates and steadily rising inflation are also important factors in maintaining equities’ appeal.
We are still of the opinion that bonds are expensive and that the income they pay is relatively low. The yield on the most popular type of bond issued by the UK government is currently only around 1.3%. Although the yield paid on bonds issued by companies can be higher, this type of bond tends to have a higher risk rating. While companies are sometimes unable to repay investors, the UK government has never defaulted on its payments to investors. Given the fairly high prices of corporate bonds and their higher-risk ratings, finding good-value opportunities in that asset class is currently quite difficult.
Our outlook for the property market remains neutral. Uncertainty remains over how the market will be affected by the UK’s departure from the EU, but high demand for industrial buildings has pushed prices for these properties higher in recent months.
As a final note, while we have a positive outlook for global growth, it is important to note that the increasing tensions between the US and some of its other major trading partners could act as a drag on the global economy. Restrictions on free trade, such as the tit-for-tat levies on exports being employed by the US and China, can negatively affect company profits, and we are taking this on board for our short- to medium-term risk models.
Forecasts of future performance are not a reliable guide to actual results in the future, neither is past performance a reliable guide to future performance. The value of investments, and the income from them, may fall as well as rise and cannot be guaranteed. Any views expressed are our in-house views at July 2018. Investment markets and conditions can change rapidly and the views expressed should not be taken as statements of fact nor relied upon when making investment decisions. This information may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.
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