Continued divergence in economic performance and monetary policy is the prevailing theme investors will have to grapple with in the year ahead, Stephanie Flanders, chief market strategist at JP Morgan Asset Management, has said.
Commenting on its 14-page research, Worldview: Central Banks, the Dollar and Investing in 2015, she said: “Investors should expect volatility, but a modest preference for stocks over bonds makes sense as long as policymakers continue to pursue stronger growth and higher inflation than the world economy is currently delivering.”
She said global central bank actions would be the primary drivers of market returns, but that the outlook for 2015 currently looked more promising for global equities than fixed income.
The US Federal Reserve and the Bank of England were likely to raise interest rates in 2015, Ms Flanders said, while feeble growth and the risk of deflation would continue to threaten Japan and Europe.
She added: “There are both risks and advantages to this divergence but, for investors, it will have three implications – a stronger US dollar, continued weakness in global commodity prices and looser monetary conditions globally than previously expected.”
Although a stronger dollar would likely have an adverse effect on some regional equity markets, she said that investors should not necessarily fear it as long as it remained reasonably orderly.
According to the research, a stronger dollar would be a win-win situation for the global economy if it helped to sustain the US recovery and revive demand in the rest of the world.
It would only become dangerous if it reflected a more dramatic divergence in the economic fortunes of the world’s most important economies.
Neil Jacobs, wealth creation manager at London-based Phillip Masters Financial Advisers, said: “Equity investors should always consider overseas markets, not just the UK. For example, they should consider what is happening on the continent, and there are opportunities in Eastern Europe.
“If you look at the global market, you would not put all your clients’ money in emerging markets as they are always a little more volatile. But as it is difficult to put a finger on what individual market will work for investors, a diversified portfolio is the most sensible way forward.”