US
It looks likely that the US will have to start to raise interest rates. The fact that GDP growth was 4 per cent in the second quarter is a very strong statement. There is a recovery there and it’s not yet reflected in the bond market, so bond yields and interest rates will inevitably have to rise. Cashflow has been used by management to buy back stock, which is leading to earnings growth – but we don’t have any revenue growth, we don’t have any top-line growth coming through in the order we would have expected.
Europe
This is the shallowest recovery in post-war history. There’s going to be volatility in this recovery. We came very far, very fast in 2013 and the second part of 2012, when the European Union emerged out of its recessionary period. It’s consolidating right now. A lot of the lead indicators, be it general confidence or PMIs, have tailed off and that’s only to be expected. The recovery is not going to be in a straight line. There will be volatility and that is exactly what we’re seeing.
Asia Pacific including Japan
The top-down situation with ‘Abenomics’ is predicated on the devaluation of the yen and trying to bring cash off the sidelines and raise returns. If that was an export-driven economy like it used to be in the 1990s and early 2000s, then that would work. Whether Abenomics works remains to be seen but whatever happens, we are likely to see a devaluation of the currency, which will benefit the exporters. Japan’s neither been negative or positive for our performance. We see corporate governance improvements coming through but, by and large, we remain underweight.
Emerging markets/China
There is a transition period as China transitions out of old, heavy industry-based growth, through to a more consumer urbanised economy and that transition period is going to see some volatility in the level of GDP growth. What we’re seeing is China coming off the high-single-digit GDP growth levels down to around 7 per cent growth and [that] is still very good. So there’s slowing growth, but there is still very strong growth in China.
Jamie Cumming, senior investment manager on the global equities team, Aberdeen Asset Management
UK
The UK stock market reaching a 14-year high may be a sign for celebration in certain quarters, but we would be more cautious. While headline figures suggest the economy is recovering nicely, underlying data remains mixed.
US
Recent stockmarket gains have outpaced corporate earnings growth, therefore valuation expansion has continued to be the main driver of performance. While high, valuations are not prohibitive – however, to justify these, the market now needs to be directed by higher-quality earnings and cashflow growth, as opposed to the support provided over the last few years by share buybacks.
