Markets may be too optimistic on the outlook for the year ahead, but two equity regions stand out as attractive, according to Rupert Thomson, chief economist at Kingswood.
Equities have rallied a little in recent weeks as a consequence of markets believing that the pace and scale of US interest rate rises will be more moderate than previously anticipated, which would be expected to boost markets.
Thomson says: “The danger that the markets are being too optimistic on the Fed is one of the major reasons why the current market rally looks overdone and markets may not see a sustained rebound before the spring. In the past, a new bull market has usually only begun when one is distinctly closer, than we are now, not only to the end of monetary tightening but also to the eventual bottom in corporate earnings and economic activity.”
The first of the two markets he believes to represent value for the year ahead is China.
He says: “The prospect of a rebound in the Chinese economy next year contrasts markedly with the outlook for the Western economies and is a key reason why Kingswood remains positive on Chinese equities.”
Chinese markets have been in the doldrums of late amid investor concerns around Covid lockdowns and the trajectory of government economic policy.
But in recent days, there have been signals that China’s lockdown policies are easing, resulting in a bounce for the local equity markets.
Thomson is also keen on UK equities, which have been a relatively successful investment in 2022, with the market delivering a moderately positive return.
david.thorpe@ft.com
