Threadneedle chief investment officer Mark Burgess said global equities and bonds made progress in May 2014, with the former outpacing the latter in local currency terms.
“Bond markets in recent months have presented us with a conundrum,” said Mr Burgess.
“In the US, our expectation is that GDP growth will be in the order of 2.5 per cent this year and that the overall macroeconomic picture is probably stronger than the Q1 GDP data would suggest,” he added.
Mr Burgess explained that the outlook for eurozone bond markets is rather more difficult to call as Germany and Spain appear to have positive growth momentum which should put some upward pressure on yields.
“By contrast, the growth outlook in countries such as Italy and France remains very subdued, which is likely to keep yields low,” said Mr Burgess.
“The lack of growth in France and Italy is worrying given that debt levels remain elevated at a time when inflation in the eurozone overall is very low,” he said.
Mr Burgess indicated that in emerging markets he is remaining positive on local currency emerging market debt, especially for investors seeking absolute levels of yield.
“We maintain a bias against emerging market equities as we are still concerned about the macroeconomic outlook for China, which is a large constituent of the emerging market equity market indices,” he said.
“Our outlook for equity markets for the remainder of the years is positive. M&A has made a welcome return in recent months, and while this increases the risk of value destruction by company managements, in the longer term it does provide an important short-term support for stocks.
“Overall equity markets have been strong and current index levels suggest that investors still have confidence in the outlook for profits,” Mr Burgess said.
