Economic Review and Outlook - August 2013
Global equity market indices recovered their losses throughout July. The US equity market which had been more resilient through the recent market sell-off underperformed European and UK equities, but still managed to achieve new all-time highs. Emerging market equities on the other hand continued to disappoint. Within fixed income, corporate credit also retraced some of its losses, whilst the rebound for developed market sovereign bonds was more modest.
Reassuring words from Ben Bernanke
Investor sentiment was lifted by comments made by US Fed Chairman Ben Bernanke, as he reassured markets that the monetary stimulus programme would remain in place until the labour market recovery had reached a more solid footing. In Europe there were more reports offering encouraging signs as the latest regional business activity index and confidence indices from core Eurozone countries pointed to a return to growth after nearly two years of recession.
Fresh moves to boost growth from China’s leaders
Meanwhile China continues to show signs of slowing growth. Gauges of manufacturing activity contracted for a third straight month, to an 11-month low; exports and imports also fell unexpectedly, raising the prospect of a deeper slowdown. In response China's policymakers announced fresh moves to boost growth.
In spite of its advance year to date, the important US equity market currently trades on a forward P/E of about 14.5x – just above its 10 year average. A continuation of modest growth and dovish Central bank policy provides an attractive backdrop for equities in particular those focused towards the world’s largest economy, which continues to benefit from positive fundamentals.