Should bank share prices appreciate?

ON UK GROWTH

Despite the recent volatility in stock markets, we still favour equities as one of the best asset classes to invest in. The main issue that overshadows the market is what may happen when central bank liquidity is withdrawn.

We have no doubt that as and when we come to the end of quantitative easing, there may well be a period of turbulence. While we believe economies can recover without the need for the constant drip feed of extra liquidity, nobody will know for sure if this is the case until we get there. In any case, there is no doubt that the withdrawal of central bank support will be a very gradual process as there are risks that economic activity will fall. Meanwhile, we feel equity valuations are still attractive, though less so than at the start of 2012 when a high degree of pessimism was priced in. ...