Decisive policy action from European leaders is required before investors can expect to see any significant strengthening of sentiment towards equities.
This is according to Rupert Watson, head of asset allocation at Skandia Investment Group, who said: “Despite a recent good run for the FTSE 100, global stock markets remain subdued over the summer, with sentiment continuing to ebb and flow with the twists and turns of the eurozone debt crisis.
“For most of July, markets were under pressure as Spanish bond yields continued to rise to levels seen as unsustainable over the medium term. Economic data remained soft and weakened further in some places.
“At the end of July, European Central Bank President Draghi said that the ECB and other European leaders would take decisive steps to ensure stability. However, at their meeting at the start of August, the ECB announced no new initiatives, although again hinted that various plans were under discussion.
“Draghi et al need to turn discussions into implementation in order to fuel economic recovery and install confidence to global stock markets. Until then it is difficult for investors to be too aggressive towards equities given the ongoing weakness in the global economy.
“We do remain overweight equities however because we believe over the medium to long term returns from equities will be strong and considerably more than bonds or cash. Emerging markets, especially emerging Asia are likely to offer the best returns over the long term.”