by Douglas McDowell, Head of Client Investment Strategies, Neptune Investment Management
Stockmarkets have provided a distinctly uncomfortable ride for investors this year. Concerns have come to the fore in different parts of the world at different times but the underlying causes have been broadly the same: uncertainty over economic growth and the seeming inability of those in authority to facilitate growth.
The charge of ‘policy failure’ is probably overly harsh especially in the emerging markets, where growth has to a great extent been engineered lower in response to rising inflation. Moreover, this inflation has been much lower than historically and less than might have been expected given the very strong economic expansion of the emerging markets. Regardless, we expect the developing world to continue to achieve growth far in excess of the developed world for many years to come.
Criticism of governments and central banks in the developed world is perhaps more justified, though the challenges in the US and Europe are formidable and well documented.
Against this unsettled background, many companies are actually in fairly rude health. Developed economies have been adapting well to lower growth by becoming more productive and rebuilding their finances; many are now as profitable as they have ever been. This, coupled with significant improvements in the management of emerging market companies, means there are now diverse opportunities for investors to gain access to parts of the global economy that are growing strongly and to companies that are providing value to their shareholders.