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US Equities Power Ahead

April 2015

The global equity markets are the flavor of the season led by the US

The global economic recovery process is still struggling to gain momentum. As per World Bank’s estimates, global growth is expected to rise moderately to 3 percent in 2015, and average about 3.3 percent through 2017. “Growth in major economies has increasingly diverged, as the recovery in the US and the UK gains momentum but the Euro Area and Japan lag behind,” the Bank noted in a report.

In Europe, concerns over Greece’s ability to meet its debt repayments commitment continue. Growth pace in China is slowing down. Weak commodity and energy prices continue to weigh on energy-dependent countries such as Russia, Brazil and Mexico. Metals, such as copper and steel, don’t present a rosier picture either. Gold however, is continuing to hold on.

In the GCC (Gulf Cooperation Council) the market sentiment looks cautious for 2015. With the crude oil price hovering low and fears over a deepening of global slowdown heightening, investors across the world are not very optimistic regarding stock market performance this year. However, the likelihood of rate hikes by the US Federal Reserve this year raises a number of questions of its impact on various asset classes.

Given this background, Manickam Ravindran tries to simplify the investment scenario and identify which sectors/asset classes are expected by analysts to perform relatively better than the others.

Equity Is The Name Of The Game

The global equity markets are the flavor of the season led by the US. Weaker commodity prices and stronger dollar augur well for the US stock markets and a healthy US economy will boost sales and earnings across diverse industrial segments. The equity market is bullish and the trend is likely to continue more vigorously in H2, 2015.

In the Eurozone, investors are left with no alternative than to invest in equity market as policy interest rates and bond yields are near record lows in euro zones. In India, the recent budget has given the required boost to corporates in India and the business conditions are improving fuelled by the pickup in economic growth and the equity markets are very buoyant. Japan equity markets will react positively to Bank of Japan’s 2% inflation target which is likely to bolster the country’s investor expectations from falling asset prices to rising asset prices.

Chinese equity markets will show an uptrend and stands to gain on weaker commodity and oil prices, as china’s growth engine is supported by commodity imports. The reform programme in China is key to rebalancing its economy towards consumption and away from investment and has given confidence to the sentiments of the investors.

US Bond Yields Are Set To Rise

The US Treasury yields are expected to rise, particularly at the short end of the yield-maturity curve as the Fed will start interest rate normalization from mid-2015. Several segments of the US bond markets, such as credits, treasury bonds, and high-yield corporates are likely to experience an upswing in returns. The potential for a rise in the yield (and spreads) is much larger for high-yield corporate bonds than for other higher-quality segments of the US fixed income market. There could be capital flows into the bond market.

Renewed Interest In Real Estate Investments In US

Core real estate especially office buildings and multi-family dwellings witness renewed interest from investors. Inflows from investors on real estate are going up in 2015. By the end of 2015, Millennials (those under the age of 35) will overtake Gen X (35-50 years old) to become the largest group of homebuyers in the US, according to industry experts.

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