City Watch: The bull market in equities still has further to run, says Mark Marshall
So far this year, new money going into global investment funds has reached its highest level since 2004, as rising investor confidence has boosted funds inflows to a decade high.
By comparison, just a year ago, when equity markets were significantly lower that they are today, investment funds recorded a net outflow.
Part of this resurgence is due to a rotation out of bonds into equities as investors have become more confident about global growth prospects and expect interest rates to rise.
There is little doubt that we would not be seeing talk of recovery without the massive and unconventional central bank support over the past three years led by the Federal Reserve and so any talk of a slowdown or “tapering” has implications for global share prices.
However, markets are beginning to factor this in and are now more relaxed about the possibility of an early move to begin reducing stimulus, accepting that this would be the consequence of a sustainable economic recovery.
You may also want to watch:
Nevertheless, for the recovery in corporate earnings to build, UK and US companies will need to have the confidence to invest in capital projects using the sizeable cash balances now held on their balance sheets.
Until now earnings growth and share prices have been driven by short term measures such as share buy-backs and special dividends, as the corporate sector has yet to find the appetite for investment in the necessary infrastructure which will drive future growth and earnings.
- 1 Tories retain Suffolk County Council control - but Greens make huge gains
- 2 A weekend of potential departures as Town finish up their disappointing season
- 3 Joy as council reverses ban on motorhomes in car parks
- 4 Poorly rated Chick King takeaway goes into liquidation
- 5 'Masterpiece' modernist home with panoramic sea views for sale for £850,000
- 6 See inside beautiful stately home near Ipswich - for one day only
- 7 'Complete shock' - Neighbours stunned after cannabis farm uncovered
- 8 How Suffolk voted in the county council elections 2021
- 9 Bookings now open for unique new Suffolk dining experience
- 10 Plans to convert pub into block of holiday lets withdrawn
As a result, equities have moved out of fair value territory into relatively dearer ground but nevertheless, the bull market in equities still has further to run, based on the expectation that companies will regain the confidence to invest in earnings enhancing capital projects.
: : Mark Marshall is an investment manager with Charles Stanley & Co in Ipswich.