Global equity markets have responded favourably to the US Congress’ approved deal to avoid a plunge over the fiscal cliff, according to Fidelity Worldwide Investment (Fidelity).
“Markets seem relieved that the stalemate in Congress has been averted in the 25th hour, with both parties finally agreeing to pass legislation to avert the fiscal cliff,” Fidelity US equities portfolio manager Adrian Brass told InvestorDaily.
However, a sustainable and long-lasting solution for improving the US fiscal position remains elusive.
“Although an agreement on taxes was reached, an agreement on budget cuts is still needed by 1 March in order to prevent automatic and indiscriminate budget cuts, which would lead to recession,” Fidelity’s head of global equities, Richard Lewis, said
“Uncertainty over the next two months could still lead to heightened equity market volatility,” he added.
Mr Lewis explained that in order to avoid further market instability, investors should focus on companies with secular growth drivers outside the US economy that trade at attractive valuations.
The ‘fiscal cliff’ refers to the $600bn of automatic spending cuts and tax hikes scheduled to come into effect at the start of 2013. Although aimed at improving the US fiscal position, these steps would have pushed the US firmly into recession.
