A briefing note from Ted Scott at F&C Investments this week made a strong case for continued equity exposure.
His note, headed ‘Markets poised for a breakout?’ explained that global equity markets, particularly in developed economies, have remained resilient in face of much negative news so far this year.
He cites political uprisings in the Middle East North Africa (MENA), the Japanese earthquake, continuing concerns about imminent default in the Eurozone periphery and the S&P downgrade of US debt outlook as reasons for investors to panic and sell.
However, the markets have been going up against this backdrop.
Explaining why this might be the case, Scott describes the various factors which have driven the current bull market and in many cases appear to be improving.
Amongst these reasons is the modest valuation for equities which look attractive relative to other investment asset classes, particularly bonds. He also explains that we are seeing a global economic recovery, which includes the world’s most important economy in the US.
There is a much stronger recovery in company earnings that economic growth figures would suggest. Add to this the fact that merger and acquisition (M&A) activity is picking up, and these are all good reasons why equity markets have remained so positive in the face of difficult world events.
Using a technical analysis, of which he admit he is not a big fan, Scott expects to see the next level of equity market resistance at the all time high of mid 2007.
All of this is a strong argument for equity investing, yet investors should continue to maintain a suitably diversified portfolio with broad exposure to the various asset classes. Arguments like this could inform investors and their advisers to add more exposure to risk assets, although taking excessive bets on a single asset class is always a risky course of action.
