The outlook for equities remains positive despite recent market volatility, according to a new report from BMO Global Asset Management (BMOGAM).
The 2018 Global Investment Forum (GIF) report includes detailed perspectives on key themes and asset allocation from BMOGAM’s investment managers, economists and strategists from around the globe.
While markets have recently weathered some choppy conditions, the global economy remains in decent shape, the report says, and this will support stocks. Indeed, corporate earnings are expected to continue growing, with equities performing “reasonably well” as a result, the report says.
By sector, financials will see their profits grow given the rising interest rate environment, according to the report and tech stocks will “continue to benefit from the solidifying of their market positions in an era of unprecedented disruption.”
BMOGAM has a “clear preference” for U.S. equities, but is “cautious” on Canadian stocks. “While a positive resolution of NAFTA is good for sentiment, Canada faces competitive challenges in addition to a significant household-debt overhang. The absence of a fiscal response to recent U.S. corporate tax cuts makes Canadian equities less attractive when compared with the U.S.,” the report says.
Ultimately, the impact of trade wars on the global economy will prove limited. “The global economic upswing has been long but shallow and inflationary pressures remain subdued, creating a fertile environment for risk assets,” it says.
A U.S. recession is unlikely, the report says.
“Although a slowdown in U.S. growth is inevitable given the hectic pace at which the economic economy has expanded this year, BMO believes it is unlikely that a U.S. recession will happen in 2020,” it says.
Emerging markets are expected to be rich ground for investment opportunities over the longer term, according to the report. “The demographics are attractive, and the ability to use technology to leapfrog in areas of education, finance and agriculture is enabling global growth,” it says. “Emerging market companies still face headwinds, but their assets are cheap and offer good opportunities on a selective basis.”
“Our view is that the global economic recovery has further to run, even though monetary policy is slowly normalising and some economies are close to full capacity. We expect earnings to continue to be healthy and expect yields to continue to rise. A feature of the next five years is likely to be the end of the recent ‘synchronised growth’ phase of the global economy and a return to uncorrelated growth rates,” says Steven Bell, chief economist at BMOGAM, in a statement.