Gary Dugan, CEO of Purple Asset Management, analyses whether equity markets can continue to deliver good returns, following recent significant successes.
Even with heavy selling by retail investors in 2019, equities still made good progress. Corporate buying of equities through share buybacks and institutional buying have also supported the markets. In fact share buybacks were on track to be the second-highest on record in the US in 2019.
As a result conditions are still positive for equities. Central banks look on track to be cutting interest rates, quantitative easing will support all asset classes and global growth will help corporate earnings. It looks likely that domestic growth may win over international growth, particularly in the light of the recent US/China trade war and some challenges to globalisation bought about as a result of the Coronavirus.
In the quest for yield many people turn to equity markets, particularly with bond markets as they are. In the UK in 2019, equity markets were at 5% yield, compared to gilt yields at 0.5%. And in moving beyond Brexit there will come more certainty in the UK, which should also translate well into UK equity markets.
Consequently good cashflow, robust earnings and dividend yield support are all markers for positivity in equity markets in 2020.
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Julian Broom, Chief Investment Officer