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Quarterly Perspectives

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LATEST QUARTERLY PERSPECTIVES

33 UK inflation

Theme overview

How will the Brexit negotiations affect European markets?
  • The Brexit negotiations have reached an important milestone with both sides agreeing to a period of transition between the UK formally leaving the EU in March 2019 and the new relationship coming in to force in January 2021. This has lifted sterling and UK interest rate expectations. Both could get a further boost if the next ambition is met - an agreement on the heads of terms of the final deal.
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Theme overview

What is the outlook for emerging markets?
  • Over the next 10-15 years we forecast that the emerging economies will grow real GDP at an average rate of about 4.5% per year compared with only about 1.5% for the developed economies.
  • Asia is a key part of this growth story. We expect the rate of Chinese growth to slow but to still average about 5% per annum over the period. India, starting from a lower base, should be able to grow at an average rate of about 7% per year.
  • Higher GDP growth should lead to higher revenue and earnings growth. Over the long term we expect emerging market (EM) and Asian equities in particular to be the best performing asset class.1
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43 Emerging markets structural dynamics


51 Equities and interest rates

Theme overview

Do higher interest rates pose a threat to the recovery and risk assets?
  • Central banks are starting to reverse the extraordinary monetary policies in place since the financial crisis. Historically, interest rates rising from a low base have coincided with positive equity returns.
  • This year we expect a very slow and gradual tightening of global monetary conditions. This is unlikely to significantly restrain corporate earnings or equity returns.
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Theme overview

How is fiscal policy in the US and Europe affecting the investment landscape?
  • Government debt as a percent of GDP is still high in the developed world. But with populations increasingly overwhelmed by “austerity fatigue” governments are turning to looser policies. This is most evident in the US, but governments in Europe are also taking advantage of low borrowing costs to spend more.
  • This fiscal stimulus could extend the economic cycle, although markets will remain nervous that higher government spending will ultimately result in higher inflation and higher interest rates. If inflation remains benign – our core scenario – then looser fiscal policy is likely to reinforce the global economic recovery in the coming years and support financial markets.
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19 US debt