ING: More sustainable growth ahead

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Challenges and rising policy divergence between nations are to be expected in 2015, ING Investment Management (ING IM) has said at its Annual Outlook Conference.

However, the asset manager also foresees the most sustainable recovery since the crisis.

The panel, which included Patrick Moonen, Equity strategist, Valentijn van Nieuwenhuijzen, head of Multi Asset and Maarten-Jan Bakkum, Emerging Markets strategist, also predicted that 2015 will see growing confidence amongst developed market corporates, which will shift their focus away from deleveraging and increasingly onto M&A activity and capex, especially in the US and Japan.

Valentijn van Nieuwenhuijzen said: “Going forward into 2015, global imbalances will still weigh on growth and investor sentiment but unorthodox central bank policies will keep overall liquidity conditions easy and both the US and Japanese economies are poised to grow above potential. Ongoing quantitative easing from the Bank of Japan is likely to further boost Japanese equities.

Van Nieuwenhuijzen  also said, against expectations, that Japan remains the company’s favourite market.

“Although the eurozone’s travails are unlikely to be fully resolved in 2015, equities in the region will continue to offer attractive yields. Fears related to China’s slowdown and European deflation will undoubtedly weigh on investors. However, at ING IM we remain optimistic as Developed Markets enter into the most sustained recovery since the crisis and risk premiums appear attractive,” he said.

ING IM expects a shift in earnings growth leadership in 2015 whereby US companies will see earnings growth slow down while eurozone and Japanese companies may see it accelerate.

Patrick Moonen said: “We expect a less US-centric equity market next year due to a slowdown in earnings growth and tighter monetary policy, while equities in the eurozone and Japan will benefit from easy monetary policy and positive exchange rate effects causing earnings growth prospects to accelerate.

He also favoured Japan due to its “very favourable valuation-growth trade-off.”

“The eurozone‘s fortunes will depend on policymakers delivering, but both dividend yield and growth are available in the region. Valuations in both the eurozone and Japan will be underpinned by earnings and policy cycles,” he added.

On the emerging market side, the managers said that the area will face considerable obstacles in 2015, particularly as China’s economy looks set to slow. This will affect other Emerging Markets more in terms of trade while US monetary policy normalisation will put further pressure on Emerging Market capital flows.

The ability of Emerging Market policymakers to push through reforms was identified as the distinguishing factor driving economic growth and market performance.

Maarten-Jan Bakkum commented: “There is continuous pressure on Emerging Market growth, despite improving demand from Developed Markets. Looking ahead, there are two main global risks, namely the China slowdown and normalization of US monetary policy, which will continue to put pressure on Emerging Market capital flows.

“We have also identified three endogenous obstacles to growth in the form of rapid leverage growth creating macro imbalances and system vulnerabilities, Emerging Market financial conditions remaining tight, and poor investment climates and deteriorating competitiveness. In the absence of reforms, more currency depreciation is likely to be needed to reduce macro imbalances and generate future growth.”


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