Markets bouncing back for Christmas, investors told

Investors should retain their holdings in European and Asian equities, with equity markets expected to rally in these regions despite recent terrorism-related events, according to one fund manager.

Instreet Investment managing director George Lucas said the traditional Christmas rally in equities has begun with a reversal of the sell-off from two weeks ago, despite the horrific attacks that took place in Paris and subsequent terror-related activity.

“Equity investors appear relaxed and also increasingly comfortable with the prospect of a US rate rise, which is looking more and more likely to be announced by the US Federal Reserve at its mid-December meeting,” said Mr Lucas.

Recent surveys show global fund managers prefer Asia and Europe over US equities, he said, while expectations are increasing that the European Central Bank (ECB) will step in soon with more economic stimulus measures by loosening monetary policy further.

Mario Draghi, ECB president, made his most forceful remarks yet about the prospect for additional stimulus, saying the bank "will do what we must to raise inflation as quickly as possible".

“Discussion around aggressive ECB action has helped drive European stocks to three-month highs and is one of the reasons fund managers remain overweight to Europe,” Mr Lucas said.

In Asia, the focus is on China as it steps towards liberalising its economy and evolving monetary policy tools, he said.

“It’s one thing for China to liberalise its capital markets but it also needs to transmit monetary policy signals through its increasingly diverse financial system. The current benchmark lending and deposit rates do not fulfil this role,” he said.

The People’s Bank of China is expected to keep market interest rates low for some time until there is firm evidence of an economic turnaround, Mr Lucas said.

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