The outlook for global equities remains mixed, with conditions moderately supportive for growth but valuations continuing to look expensive, says Morningstar.
According to a Morningstar August 2015 economic update, global equities rallied in July following news that Greece reached an agreement with it’s creditors, but subsequently weakened due to the news out of China.
The report indicated that the strongest performers within developed markets over the year to date are Japan and the eurozone.
Japan’s Nikkei Index is up 16.9 per cent for the year, with French and German shares noting returns of 15.3 per cent and 11.4 per cent respectively.
Although eurozone economies have recorded strong gains, Morningstar said the eurozone is benefiting from enthusiasm surrounding the European Central Bank's (ECB) monetary policy, which was implemented earlier in the year.
“More recently, eurozone markets have been struggling, with the FTSEEurofirst 300 index currently trading 8.1 per cent below its mid-April peak.”
While there are some bright spots within developed markets, emerging markets are down 9.9 per cent.
“There is wide agreement that the global economy is growing, but at a modest rate, and with some vulnerable spots,” the report said.
“Ongoing expansion in the global economy provides some support for potential gains in world equity prices, but, given that they are starting from generally expensive valuations, the upside is limited and markets remain unusually vulnerable to any adverse surprises.”
Moreover, Morningstar said local investors may enjoy better returns from global equities than domestic equities if their currency continues to decline.
“But on that score, too, the bulk of the currency depreciation may already be behind us,” the report said.