Recent asset price movements imply the market is preparing for an imminent recession, but such fears are misplaced according to Jacob De Tusch Lec, who runs the £3.6bn Artemis Global Income fund.
The fund manager said although the global economy continues to grow, many of the better stock market performers this year to date have been companies that are less likely to benefit from economic growth.
Recent relative weakness of the US dollar has boosted global economic growth this year, he said, and will continue to inject both inflation and growth into the global economy.
Mr De Tusch Lec said: “Our expectation..is that growth will continue, that inflation will return and bond yields should start to move higher.
"The market's expectation that the next recession is just around the corner has consistently proven to be misplaced. Today every part of the global economy is expanding, commodity prices are rising and corporate earnings are growing.”
The Artemis Global Income fund has returned 117 per cent over the past five years, compared with 73 per cent for the average fund in the IA Global Equity Income sector in the same time period.
On how the market has reacted to the changing outlook for global growth, he said investors are retaining a clear preference for expensive stocks whose attractions lie in their long-term potential.
He gave the example of Tesla being favoured when they are generating negative free cashflows, rather than cheap stocks that pay dividends such as his holding in General Motors, which trades on a price-to-earnings multiple of less than 6x.
"We do understand the attractions of betting on the future as opposed to the present: providing online services in China is probably a better long-term growth strategy than making petrol-driven cars," he said.
"But we do think the market is losing sight of the continued attractions of some old-style companies.”
Companies in the technology area that have been growing for a prolonged period of time have, according to the fund manager, been elevated to valuations he considers to be excessive because they were the only companies displaying any growth.
But as the outlook for global growth improves, according to Mr De Tusch Lec, more companies will display growth, and outperform the big name technology companies of recent year.
A weak US dollar is generally beneficial for economic growth firstly because commodities such as oil are priced in dollars.
So for consumers and businesses around the world, the cost of fuel drops, as does the amount of income that needs to be spent by businesses on industrial metals falls, leaving more cash for expansion.
A weak dollar also boosts global growth because much of the capital lent around the world is either sourced in dollars or priced relative to the income the lender could attain by buying US government bonds.
A weak dollar means the risk free return is worth less to the financial institution, so the incentive is to lend to the business, which boost growth.
Mr De Tusch Lec said he thinks bond yields will rise as 2017 progresses, as the market becomes more aware of the value of the fall in the dollar.
That would, in his view, send bond yields higher and benefit the investment case for banks, including US banks, which are required to own bonds for regulatory reasons, and also benefit because economic growth boosts the demand for lending in the economy.
Peter Elston, chief investment officer at Seneca, said he believes the dollar has peaked, because much of its strength in recent years has been the result of market expectations that interest rates would rise - they have now risen four times - and the view that the US was the only economy where growth was strong, so the dollar acted as a safe haven.
With growth more evenly spread around the world, the safe haven status is diminished.
David.Thorpe@ft.com
