In its quarterly global outlook, the company stated that while geopolitical events could pose a potential risk, improved business sentiment and a revival in profits would see shares outperform the returns from many fixed income assets.
Standard Life Investments CEO Keith Skeoch stated the tone of the market would likely be driven by a “tug-of-war between earnings and interest rates”, and that the group expected earnings to win out.
In terms of equity markets, the company favours the United States and to a lesser extent, the UK and Japan, compared with European and emerging markets.
Despite the US economy expanding below trend pace, it still managed to generate a decline in unemployment, according to the outlook.
Jeremy Lawson, chief economist at Standard Life Investments, said the company is optimistic that the recovery of the US economy would strengthen as the year continued.
“The economy has been resilient in the face of a significant fiscal tightening this year; activity would likely have grown at an above-trend pace in the absence of austerity,” said Mr Lawson.
This growth will be supported by long-term bond yields and mortgage rates remaining below historical norms, a delay by the Federal Reserve in raising policy rates, the continual rising in wealth reflected by house prices and forward-looking non-financial indicators improving, he added.
Mr Lawson did state, however, that the US government shutdown could have a destabilising effect.
The UK economy experienced a significant improvement, according to the report, growing strongly in the second quarter. Business and consumer sentiment surveys have also suggested further growth.
The outlook suggested this was due to a strengthening of the Eurozone, stronger consumption levels driven by declining savings rates and government policy designed to generate an increase in house prices. Despite this, however, Mr Lawson said until there is an improvement in the balance of this positive outlook, Standard Life will remain tentative towards the UK.
Japan also experienced a strong economic performance in the first half of the year with higher equity markets, a lower exchange rate and improved business and consumer confidence, according to the outlook. Despite this, Mr Lawson said until Japan adopts stronger structural reform, Standard Life will remain cautious.
The outlook considered the near-term prospects for emerging markets, including India, Brazil, Indonesia, South Africa and Turkey to be concerning as a result of their large current account deficits.
“Their currencies have come under significant pressure as capital inflows have gone into reverse during the march towards Fed tapering,” said Mr Lawson.
“Current account deficits may be reduced over time, but this will almost certainly be accompanied by sluggish domestic demand, creating difficult trade offs for policymakers.”
Mr Lawson said while Europe’s exit from the recession and Germany’s continued growth are positive signs, the debt overhang and Europe’s undercapitalised banking system could impede Europe’s overall growth.
