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Broker's take: Coutts continues to favour equities, particularly in Europe
COUTTS continues to favour equities, particularly in Europe, and remains underweight bonds.
The investment strategy committee at the private bank and wealth manager says while markets may remain jumpy and further bouts of selling are possible, it is confident that global equities will find a floor and recover in due course.
It sees the current panic in global equity markets "made in China", where the government's attempts to try to stop an equity bubble from bursting and the recent renminbi devaluation have undermined confidence that China's policymakers are in control of events.
"But we are not too worried about the global economy and markets as we believe the recovery in the US and other developed economies remains intact," stresses Coutts.
It notes that recent growth indicators from the United States and Europe have been fair, with no signs of recession in the US - which is one of the big red flags that it focuses on.
"Looking ahead, demand and spending are strong in most of the developed world, and will be reinforced by falling unemployment, low commodity prices and a looming upturn in the manufacturing cycle," Coutts says.
It believes that the worst is past for most emerging markets as currencies have adjusted, competitiveness has improved and there is scope to lower interest rates in some cases. Emerging markets should benefit from the expected pickup in developed market manufacturing.
China, the largest emerging market, remains a big wild card. Coutts sees few signs of a hard landing in China. It says growth is weak but not disastrous, and the crucial housing sector actually seems to be picking up.
"Even if the available evidence turned out to be misleading and a hard landing was occurring, the economic links between China and the rest of the world are not strong and we don't believe a recession in China would derail the recovery in developed economies."
Coutts says the recent falls in equity prices have made global equities cheaper. "Prices relative to earnings in most markets are now in line with or below their long-term averages, while a number of major markets - like France, Italy and the UK - look downright cheap to us."