In November, equities and credit markets were spooked by Dubai’s request for a debt standstill at Dubai World, but Skandia says this is unlikely to become a major credit event such as the collapse of Lehman’s while “economic consequences appear minor.”
Skandia says equities rose in November buoyed by comments from G7 central banks that interest rates would stay very low for some time to come.
The firm is remaining overweight equities and anticipates a rally into year-end supported by very low interest rates which should boost both the economy and financial markets.
It favours emerging over developed markets and remains overweight credit, expecting credit spreads to narrow further.
Chief investment officer James Millard says: “Over the medium term economic growth and corporate profit growth is likely to be stronger in the emerging markets, while many emerging markets are performing strongly now.
“In the short term, however, we have reduced the size of the overweight in emerging markets as portfolio rebalancing into year-end could lead to strong flows into developed markets. These flows could be most pronounced in the US, where we have increased the weight to neutral.”