The economic background remains broadly favourable: the US is the strongest of the developed markets. Although, a rate rise appears to be imminent inflation looks likely to remain subdued with commodity price weakness a partial offset to wage growth. The Euro area is benefitting from currency depreciation, lower credit costs and commodity prices. Despite the strength in equity markets, valuations are reasonable though future returns are more likely to be driven by earnings than multiple expansion. The risks are in those emerging markets which are commodity producers. We believe that commodity users are much better positioned and are optimistic that China will make a successful transition to an economy with greater reliance on consumption and services.
There are a number of disruptive developments affecting ll countries and sectors. These are; internet /big data, the declining use of material resources in developed economies, 3D technologies and materials science and bio medical innovations. The net effects of these are disinflationary and the productivity benefits are probably not being fully captured in economic data. The sectoral disruption in for example, financial services is likely to be profound. The investment implications are generally favourable for developed countries though great care should be taken to avoid industries that look likely to be long term losers from these changes
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