GLOBAL - Baring Asset Management (BAM) has gone overweight in emerging markets and Pacific Rim equities where it believes risks have reduced.
BAM has lifted its exposure largely in “cheap” Asian and Eastern European stocks since it anticipates continued outperformance in this area, compared to a period of low returns in developed markets.
The group also challenged “overstated” deflation fears, saying that a defusing of a stockmarket bubble should not be confused with widespread macroeconomics deflation.
Chief investment officer Michael Hughes explained: “Deflation in the 1930s was the result of depressed demand, not the cause of depressed demand. Bad economic policies depressed demand which caused deflation, particularly in the US during that time.
“Partly because of the events of the thirties, policy is now very different.”
On bond markets, BAM said that changes in G7 fiscal policy meant that the risks associated with bonds were rising.
Hughes added: “For most of the 1990s, fiscal policy was tight but, we have now moved back into a period where the budget deficit has started to grow and we are seeing an increasing degree of fiscal stimulus and government underpinning of the private sector debt refinancing.”
BAM has reduced its bond weighting in it global balanced portfolio, having been overweight during the first half of the year.
On equities, the firm argued that the distortion of US corporate earnings seen over the last five years is over.
“The earnings outlook will not suddenly improve, but ‘post-bubble’, we can at least now apply fundamental analysis to the US market in a way that gives a higher level of confidence,” said Hughes.
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