Investors remain bullish on growth in stock markets around the world dismissing fears over a big risk event which could upset the “reflation” trade.
Investors surveyed by Absolute Strategy Research (ASR) think there is a three-in-four chance of benchmark US 10-year bond yields rising further over the next year, as equities continue to draw money.
This confident call on the US economy is underlined by the perceived strength of world stock markets.
The probability of returns on global equities beating the returns on bonds is pegged at 74 per cent, while there is a 70 per cent chance global earnings will continue to grow.
Investors continue to eye warily the biggest known risks to returns, such as a global recession or a slowdown in Chinese GDP growth, but for the time being they are not perceived as standing in the way of the reflation trade.
While not negligible, a slowdown in China is seen to have a 31 per cent probability, while the chance of a country leaving the Eurozone is only one in four.
David Bowers, ASR head of research, said: “Investors continue to expect an improving global business cycle, and to shun the risks of a global recession, a Chinese hard landing or a rise in the US unemployment rate.”
However, stock markets around the world have seen declines over the past week as fears have risen that US President Donald Trump may not be capable of delivering his signature growth-boosting campaign pledges.
Bowers said: “We are worried that investors’ optimism is going to be challenged as we go into the second half of the year. We worry that both the Chinese and US economies will slow – especially if President Trump struggles to deliver a meaningful fiscal stimulus.”