Intermediaries are becoming less fearful of the effects of inflation and more favourable towards the UK’s economic outlook, according to the latest Baring Asset Management Investment Barometer.
When asked about the biggest global macro-economic challenges to investment growth in the next six months, just one in five (21 per cent) intermediaries cited the risk of inflation – compared to a third (32 per cent) in the previous quarterly Barometer2.
Indeed, over the next three years, around half (53 per cent) of intermediaries are anticipating the UK economy will predominantly experience inflation compared to nearly three in five (58 per cent) when questioned previously. In terms of GDP growth, there was a slight fall around stagflation expectations with just over a third (36 per cent) predicting stagflation (37 per cent in the last Barometer).
Intermediaries have become slightly more positive towards UK equities with an overwhelming 87 per cent of intermediaries saying they were favourable or very favourable towards the asset class contrasting against 86 per cent in the last quarter.
Rod Aldridge, head of UK wholesale distribution at Barings, says: “Considering the uncertain environment in the Eurozone, it is unsurprising that intermediaries are still concerned about overall global economic health. However, in the UK there is a growing sense of optimism, culminating in more interest towards UK assets. Our research shows that the perhaps the shackles are loosening.”
When the respondents were asked what they believed were the biggest macro-economic challenges to investment growth in the next six months, nearly half (47 per cent) cited slowing growth in China. This was a significant increase from one in five (21 per cent) intermediaries that selected this option in the previous Barometer. As a result favourability towards Asia equities (excluding Japan) fell from 97 per cent to 84 per cent.
However, recent volatility and concerns around the economic policies advocated by Shinzō Abe, the Prime Minister of Japan, does not appear to have impacted on the favourability towards Japanese equities with 80 per cent declaring themselves favourable or very favourable compared to 71 per cent in the last Barometer.
Aldridge says: “We predict that in the short-term, Asia is still likely to see higher levels of growth than Latin America and Eastern Europe, and that the short-term outlook for emerging markets is challenging given the reliance on exports to the West and a general lack of supply-side reform. However, despite these challenges, we strongly believe that Asia and emerging markets will experience much stronger growth over the long-term than developed markets.”