Investors should be prepared to “plug into lower returns” and assume more market volatility, according to JP Morgan Asset Management’s chief economic strategist, UK and Europe, Stephanie Flanders.
Speaking at the National Association of Pension Funds (NAPF) Annual Conference in Manchester, Flanders (pictured) said the divergence between emerging and developed markets left the picture unclear for asset owners.
She said: “There is a real question we face as investors: is it going to be more of the same or something different, and [how] should we be preparing?”
The former BBC economics editor said the developed world was unlikely to be perturbed by the bursting of China’s equity bubble but added while the devaluation of the renminbi had been expected, it still led the developed world to question whether “something awful” was going on behind closed doors and whether China was handling policy in a “cack-handed way”.
“We had given China the benefit of the doubt over the past few years”, she added.
According to Flanders, a hard landing depends on which side of China’s economy is considered because manufacturing has dropped but the services sector has become “much bigger very quickly”.
Elsewhere, in the developed world the Fed is sending confused signals over rate rises and the fact unemployment is below long term average but wage growth had not kept up. Meanwhile, in the UK productivity has increased along with real wages while Europe was also faring better.
Flanders said she did not believe we are on the cusp of a true bear market because that needed the business cycle to kick in, but the search for yield in the sovereign world continued to be an issue for investors. This, she added, was not just a symptom of quantitative easing (QE), but a long-term structural change dating back as far as 1979.
“We have to plug into lower returns,” she said. “Developed market equities are better value than they were, but only emerging markets are cheap.”
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