LONDON - Stock markets are in the early stages of a bull cycle and investors will buy into them because money is cheap and economies will return to pre-pandemic days more quickly than expected, a top Aviva Investors’ fund manager said on Monday.
Peter Fitzgerald, chief investment officer for multi-asset and macro at the 334 billion pound ($446 billion) asset management firm, told the Reuters Global Investment Outlook Summit the risk of a short-term market correction was high after one of the best months on record for shares.
But any sell-off was an opportunity “to add risk”, with equities set to extend their gains next year.
“Our view is that as you lift restrictions, the world will revert back to something more similar to what we had pre-coronavirus rather than some sort of new normal everybody likes to talk about,” he said.
“We do think you are at the early stages of a new cycle.”
He said household income had increased since the pandemic struck - extremely rare for a recession - and that COVID-19 related data, including on vaccines, had been more positive than most people had expected in March.
While many stock markets have recovered to record highs, Fitzgerald said the rebound had been highly concentrated.
European banks, cyclical businesses and travel and tourism stocks were still below their pre-pandemic levels and trading “relatively cheaply”.
“If you are a non-leveraged investor who is not going to be shaken out of markets, you need to have an overweight allocation to risk assets in today’s world where the value of money is being degraded,” he added.
Risks to his bullish outlook included an “over-exuberance” towards highly-valued U.S. technology stocks that has unnerved investors, as well as the possibility governments, particularly Britain, will cut back spending too early, Fitzgerald said.
He believes inflation will reappear in 2021 but the risk for markets is whether central banks raise interest rates to curb rising prices. The risk is considered small, given the Federal Reserve has said rates will stay low for longer.
Fitzgerald also said that for next year he expected:
* The dollar to struggle and weaken against the euro, yen and select emerging market currencies, including the Mexican peso and Russian rouble, because no other central bank could “out dove” the Federal Reserve.
* UK assets to outperform, with the FTSE 100 and FTSE 250 closing the gap with European shares as investors return to Britain following the announcement of Brexit trade deal.
* The European recovery fund is “unequivocally positive both for European integration and for the European economy” and is bullish for euro zone government peripheral bond yields. Europe is beyond “peak populism” in terms of a euro zone break-up.
* His bias is for more inflation to reappear in 2021 and he is positioned for higher inflation with long-dated U.S. inflation swaps and through buying gold. But the Fed is unlikely to hike rates to address higher price rises.
Follow Reuters Summits on Twitter @Reuters_Summits
($1 = 0.7483 pounds)
Additional reporting by Sujata Rao; editing by Barbara Lewis
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