Equities should surpass bonds in H2

SOME call it listless, boring, or just generally trendless, but so far 2014 has not worked out the way many had expected. Up to date this year, the performance of global equity markets has been patchy and seems at times inconsistent to the fundamentals. This of course can be attributed to the fact that we continue to get unexpected events that have affected sentiment or the market's misperception of economic reality.

Looking back at the first half of the year, the key assumption of most market participants was that a strengthening recovery of the United States economy would be the driver for equity outperformance and a more broad-based normalisation in both the global economy and monetary policy. But due to an unexpected harsh winter in the United States, growth stalled in Q1 and only in Q2 are we experiencing a sharp rebound in growth. Even though the momentum in growth is reappearing, there was a dampening effect on investor sentiment overall. Furthermore, the unexpected flare-up in the Ukraine and the subsequent annexation by Russia of Crimea raised tensions in Europe. Geo-political uncertainties are usually bad for markets and those involving large countries do have a major impact on financial markets.

We do expect that unless the tensions de-escalate, this issue may continue to affect investor sentiment going forward.