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Stay "long but be careful" on equity markets in 2014: fund managers

English.news.cn   2013-12-28 23:32:47            

LONDON, Dec. 28 (Xinhua) -- Investors could still be long on equity markets, but should be ready to reduce risks significantly and rapidly in 2014, if growth in the major economies does not catch-up with market expectations, said the major global fund managers in their new year outlook reports.

Risk assets such as stocks and corporate bonds have further to run in 2014, even as a global tide of easy money slows, said BlackRock Investment Institute (BII) in its 2014 Investment Outlook report.

The BII considers key factors, such as the gradual exit from quantitative easing in the United States, tentative signs of a weak European recovery, Japan's growth plan and China's reform agenda, as the potential incentives to create upside surprise or unforeseen downside risks.

"Low for Longer", or remaining cautious optimism, would be the base case investment scenario with a 55 percent probability next year, features tepid economic growth and loose financial conditions, said the BII.

Pioneer Investments is also maintaining its generally overweight position in equities - with the notable exception of the U.S. market, where the prospect of an end to quantitative easing is more tangible than in Europe.

Giordano Lombardo, Chief Investment Officer at Pioneer Investments said that: "2013 is going to end up a very good year for investors in the so-called risky assets. Looking ahead to 2014, our main message to clients is that we remain long risky assets, equities in particular, with a caveat: our mantra is 'be long, but be careful.'"

The reason for "being long" is that the central banks' support to markets in terms of liquidity creation is not coming to an end soon, said Lombardo.

"But on the other hand, the fund manager believe that the central banks' unconventional monetary policies are becoming less and less effectively, not only in affecting the real economy but also in terms of influence on asset prices," said Lombardo.

"Monetary policies have probably reached their maximum point of impact of financial markets, and going forward we need to see real process in the growth of real economies. In this respect, we are watching closely how the big secular transitions are playing out in the main economic areas: U.S., Europe and China."

Up to Dec. 24, the S&P 500, Eurostoxx 600 and the Nikkei indexes, which are the benchmark equity markets gauges in U.S., European countries and Japan, was up more than 30 percent, 13 percent and 50 percent respectively this year, data showed.

As the Federal Reserves will move forward with tapering early next year, however, Chris Wallis, Chief Executive Officer at Vaughan Nelson Investment Management, expects it to pressure certain areas of the market, but he believes active management has the potential to do real well.

"We think the equity indices can remain challenged for several years, but there are still great opportunities in individual securities," said Wallies. He also points out that the biggest headwind facing equity investors is probably pressure with corporate margins.

Regarding the capital outflow from emerging markets (EMs) and its impact to the risky assets there, John Greenwood, Chief Economist at Invesco Ltd., said: "The EMs do remain at the risk of capital flight, ad the haven't decoupled sufficiently from developed markets in order to be able to grow independently of what is happening in the developed western nations."

The EMs have seen a sudden capital outlow since this May, when Ben Bernanke, the Fed's chairman, made his testimony about the possibility of tapering.

"I don't think we've seen the full outflow, there will be further outlows, particularly when U.S. benchmark interest rate start rising further. Meanwhile, most of the EMs have done enough yet to restructure away from export-oriented growth," said Greenwood.

Editor: yan
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