Equity markets will rebound in the coming year, but will not reach the highs of last year, Ms Katherine Garrett-Cox, chief investment officer with Aberdeen Asset Management, said yesterday.
"Broadly speaking we are sanguine about the outlook for equity markets and bond markets over the next 12-18 months," she said.
"But we think, if people expect to see the returns akin to the 20 per cent to 25 per cent over the last few years, they're going to be very disappointed."
Ms Garrett-Cox is one of the City's most powerful fund managers, controlling around £36 billion sterling (€58 billion) of investors' money.
She also warned that the next quarter could see some fluctuations in markets. "I think over the course of the next three to four months we expect markets perhaps to actually re-test some of the lows."
Aberdeen is forecasting a 10 per cent to 15 per cent return from equities over the next 12 months, which compares favourably with its prediction of a 4 per cent to 7 per cent return from bonds and 3 per cent to 4 per cent return from cash.
"So, we would argue that, long-term, equities are where you need to put your money," she said. Ms Garrett-Cox said the forecasts were based on a concerted global response, such as the sharp reduction in interest rates, to reflate economies.
"The key to what happens in the world is undoubtedly what happens in the US. The US clearly went into recession this year, technical or otherwise. It hasn't been great and obviously the tragic events of September 11th have only served to accelerate the downturn. But we do think the recession is going to be relatively low and relatively short-lived and we think, by the back half of next year, things will be looking much better."
Recent rallies in the Dow Jones and Nasdaq indices are reflective of the policy structure in the US, according to Mr Michael Karagianis, head of global strategy and asset allocation at Aberdeen.
"Interest rates are extraordinarily low and fiscal policy is also very supportive. We're not expecting the economy to return to the heady pace of 1999/2000 but we think this policy mix is enough to get the economy growing again and that's all you need to see to get equities doing relatively better," he said. The economic cycle in Europe was lagging three to six months behind the US and was still decelerating rapidly, he said.
"I suspect it will decelerate into the new year. Germany is in recession now and it is going to drag down a lot of other economies. We expect Europe will at least stagnate and will possibly go into a pan-European recession, which means interest rates will have to go a lot lower. Don't be surprised if they head down towards 2 per cent in Europe over the course of the next few months as policy makers react to this environment," he said.
