Investors will need to be more judicious when thinking of where to put their money in the year ahead, though equities still look like a good bet, JP Morgan Asset Management said in a report.
It added that 2015 will be an important year, given an expected rise in United States interest rates that would affect many asset classes.
“The ongoing monetary policy normalisation in the US is entering a new phase with the end of quantitative easing,” said Mr Tai Hui, the chief market strategist for Asia at JP Morgan Asset Management, in the note.
Global equities should continue to get support from loose monetary policy in Japan and Europe, where central banks are indicating that they will do more to stimulate growth.
The report said Japan is taking over the liquidity baton in a bid to spur export demand and give economic growth a lift. The world’s third-largest economy entered into a technical recession in the third quarter after economic output fell 1.6 per cent following a 7.3 per cent contraction in the second quarter.
Economic growth weakened after a sales tax was raised from 5 per cent to 8 per cent in April. The European Central Bank could go ahead with its own quantitative easing, added the report, as consumer and business confidence has turned more cautious.
Even though the US could raise interest rates next year, benign inflation in the economy would reduce the need to push rates up substantially, supporting growth in equities.
“Decent sales growth and ongoing profit growth should give the corporate sector sufficient incentive to invest, especially as buybacks and dividend increases slow down,” the report said.
While solid US economic recovery will help to boost US dollar-denominated assets, it does not mean emerging markets will necessarily suffer, said JP Morgan Asset Management.
Emerging markets have historically tended to have an inverse relationship with the greenback, as capital flows out of those markets to higher-yielding US-dollar assets. JP Morgan Asset Management said emerging markets have better defences against capital outflows, having adopted a more flexible exchange rate system and increased foreign exchange reserves.
Commodity exporters in emerging markets such as Russia, South Africa and Brazil, however, could continue to face headwinds owing to sluggish global demand growth for raw materials.
This article was first published on December 14, 2014.
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