One of the big questions for the coming year is whether or not worldwide economic growth (which is widely predicted) can drive corporate profit growth, according to Threadneedle chief investment officer Mark Burgess.
“Equity markets have clearly performed extraordinarily well over the last few years; the S&P 500 is up by 50 per cent, the Financial Times Actuaries All Share Index up by 33 per cent and the world equity index up by over 40 per cent,” he said.
And while corporate profits have grown, they are by no means matching the rise in investment markets, said Mr Burgess.
“Returns have been driven by a re-rating, fuelled by increasing confidence, ongoing central bank stimulus and liquidity provision,” he said.
“For equity markets to progress further we need corporate profit growth to take up the running – it’s unlikely equities can go much further without that happening,” said Mr Burgess.
There is “every reason” to believe corporate profits to rise in 2014 if global growth takes hold, he said – but investors need to be mindful of the impact of falling unemployment on margins given their “current elevated levels”.
Finally, investors ought to remember that the global financial crisis occurred six years ago, said Mr Burgess.
“Looking at past cycles, history would suggest we are now closer to the next crisis than the last one. Let’s hope that proves not to be the case,” he said.
