A slowdown in the pace of interest rate rises and a pick up of growth in China mean emerging market and European assets should perform well for the rest of this year, according to Chris Godding, chief investment officer at wealth manager Tilney.
Mr Godding said the decision of the US Federal Reserve to declare that it may not put US interest rates up this year, has boosted the investment case for emerging markets.
This is because most emerging market companies and countries have to borrow in dollars, and if US interest rates rise the likelihood is that the value of the dollar would rise and this would increase the cost of borrowing for emerging markets.
This in turn would reduce the pace of growth in those economies, and the amount of cash available to return to shareholders.
Since the start of the year the Chinese government has cut taxes and taken other measures to try to stimulate growth in that country.
Mr Godding regards this as a positive for Eurozone equities, as many Eurozone companies derive a large share of revenue from the Chinese market, so a healthier Chinese economy is good for Eurozone businesses.
Mr Godding said: "For the moment, the global economy is beginning to stabilise and we expect earnings revisions to follow suit relatively soon. In this respect there is more potential for non-US economies to deliver given the capacity constraints in the US market and wage pressures we see there.
"International stocks are a better prospect in terms of valuation and momentum, bar Japan where the prospect of an increase in VAT planned for October is a concern."
Justin Onuekwusi, head of retail multi-asset funds at Legal and General Investment Management, said the policy of the Chinese government has "taken one of the major risks away", and so left him bullish on equities in the short term.
Luca Paolini, chief strategist at Pictet, said emerging market assets are in a "sweet spot", due to US and Chinese policy.
david.thorpe@ft.com
