Fundamentals remain broadly supportive for equities

ASSET ALLOCATION

With equities rebounding by around 60% in the 12 months following their March 2009 lows, a period of consolidation was to be expected, although many were surprised by the speed and extent of the pullback that we have experienced in recent weeks.

Nonetheless, fundamentals remain broadly supportive for equities overall; although the growth outlook for the UK remains muted, the global economic recovery is continuing and company newsflow is generally positive. Monetary policy is still extremely loose and underlying inflationary pressures appear muted; in the US, core measures of inflation are low and whilst headline UK inflation is likely to pick up over the coming months, the output gap remains substantial, and we are unlikely to see the emergence of wage pressure any time soon. Nonetheless we do recognise that there are risks to t...