Equities in the lead as year-end approaches

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As November comes to a close, the general trend in the markets for the month has been positive for developed-market equities and negative for US Treasuries, says Alan Higgins (pictured), UK CIO at Coutts…

The markets seem to be in line with our positive outlook for continuing US-led global growth for now.
 
The biggest gains in November have been in Japanese and European equities – two markets we highlighted a positive view on in our Investment Outlook 2015 – as has been the case over the year so far. Year-to-date returns have been strong for both (16 per cent and 17 per cent respectively), but we believe there is more to come and these markets remain inexpensive.
 
We’ve been roughly neutral on UK equities, which are underperforming the rest of the developed markets despite UK economic growth being among the strongest. The significant overseas revenue of the biggest UK companies has probably been a drag on sentiment, given recent concerns about global growth. The UK may be one to watch in 2016, given our positive view on the world economy.
 
We also highlighted our preference for equities over bonds at the start of the year, one we’ve maintained for several years now. So far in 2015 the general trend has been in our favour, though losses have been modest for US Treasuries and UK gilts and German bunds have made a small gain.
 
Lately, US and global equity markets appear to be taking hints of a rate hike from the US Federal Reserve (Fed) as a positive signal on growth and not as something to be feared.  Recent data from the US has backed up rhetoric from Fed officials in suggesting that the economy is strong enough to warrant an increase in interest rates at the Fed’s next meeting on 16 December.
 
Uncertainty remains of course, of which the recent terrorist atrocities in Paris were a sombre reminder.  But we hold to the belief that the best approach we can take is to keep an eye on valuations while assessing the underlying outlook for economies and corporate profits when making investment decisions. We still see the US-led global recovery continuing and building momentum into the new year.
 
UK Autumn Statement: steady as she goes Markets thrive on predictability as well as positive surprises. Steady and predictable growth of the sort projected in the Chancellor’s Autumn Statement last week looks set to underpin UK equities.
 
The Chancellor’s Autumn Statement shows the UK economy in good shape, with predictions largely unchanged from the Summer Budget of July.
 
Projections from the Office of Budget Responsibility (OBR) show growth of 2.4 per cent while some minor tweaks to growth forecasts through 2020 roughly netted each other out. While unemployment is predicted to fall, average earnings have been revised down by 0.2 per cent for each year until 2020, putting less money in consumers’ pockets compared to previous estimates.
 
Among the measures announced was an extra 3 per cent on stamp duty for second homes, helping to fill the government’s coffers while pouring some cold water on demand for buy-to-let properties and potentially house prices too.
 
But there was good news for house builders as the Chancellor announced a GBP2 billion project to build 400,000 affordable homes – house builder shares were up on the morning of the statement in expectation of the move.
 
In general, the Chancellor wielded the austerity axe more gently than many predicted, helped by revised tax figures from the OBR and lower than expected debt servicing costs due to low interest rates. This allowed the Chancellor to moderate some of the expected spending cuts while keeping his goal of a GBP10 billion surplus by 2020 in sight

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