UK - Equity markets will come under pressure in coming months due to rising interest rates and higher oil prices, Baring Asset Management warns.
The firm says the likelihood of further interest rate rises by the Bank of England, coupled with the trend towards higher oil prices, could drive down economic growth in the UK – and prompted the manager to go underweight in equities relative to bonds.
Strategic policy group chairman Percival Stanion explained: “Despite strong earnings figures, equity markets are becoming increasingly nervous that they have seen the best growth rates for this cycle.
“Monetary policy is shifting to a tightening stance raising the possibility of slower activity going forward, while oil prices have risen to worrying levels. We find few markets or sectors where valuations are compelling and therefore expect equity markets to remain under pressure over the next few months.”
The firm believes US and eurozone equities will be the worst hit, while the markets in Singapore and Hong Kong will fare the best. It is neutral on UK, Australia and Japan.
Stanion said: “There seems to be a virtual buyers’ strike on amid worries that the Bank of England is becoming more determined to slow the housing market.”
He added: “While the US economy is not as yet showing signs of stalling ahead of Fed tightening, Baring maintains that leading data indicates that the US economic growth has peaked, with more sluggish growth expected into 2005.”
The US Federal Open Market Committee is expected to lift interest rates by a quarter-point this week from 1.25% despite a dismal July employment report.
Meanwhile, London markets slumped towards their lowest levels of the year amid concerns over the durability of a US economic recovery.
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