Schroders’ Forest sees stock rally broadening beyond IT in 2018
LONDON: A tech-led rally in global equities should now broaden out to other sectors in 2018 and spur high single-digit returns, Schroders’ head of multi-asset investment Europe said on Monday.
Aymeric Forest told Reuters’ 2018 Global Investment Outlook Summit that a backdrop of low inflation and relatively easy credit, synchronized economic expansion and looser government fiscal policies in many areas supported further earnings-led gains.
Forest, who runs several portfolios across emerging and developed markets for the British asset manager, which invests 430.2 billion pounds (US$562.27 billion) in client money, said in turn this should lift stock-to-stock correlation and by extension market volatility.
“It’s very much IT first (at the moment). We believe if we have a broader participation in this growth, it would help the rally continue,” Forest told the summit, held at the Reuters office in London.
While the best gains had already been made after a ‘V-shaped’ economic recovery from mid-2016 until the end of 2017, stock markets could add another seven to eight per cent to earnings growth next year simply by recovering to trend growth globally.
“The two areas where earnings growth seems to be the highest for 2018 are still emerging markets and the US, although there is potential for a positive surprise in Europe,” Forest said.
While he had started positioning portfolios to profit from such a move on an expectation that broader earnings growth would prompt investors to buy into relatively cheaper stocks, the contrarian move had raised questions among some investors.
Chief among the risks is a higher-than-expected increase in U.S. inflation, particularly if the market is given too-much stimulus.
“There’s a lot of debt in the world, so you want interest rates to normalize steadily, you want inflation to recover steadily; you don’t want large shocks.”
“For me, that would be the biggest risk ... no-one expects inflation to accelerate,” Forest said.