Investors should be wary of uncertainty around the Chinese market, high levels of fiscal debt and slowing global growth, according to Columbia Threadneedle Investments.
Columbia Threadneedle Investments chief investment officer for Europe, the Middle East and Africa and global head of equities, Mark Burgess, says the “underlying macro backdrop” is not conducive to “rampant market returns”.
Mr Burgess pointed to China’s debt-driven growth strategy as a primary concern for global markets, noting that there was growing concern about “China’s ability to both sustain its growth and engineer a soft landing” without triggering a credit crisis.
“Any departure from a strategy of growth through credit issuance would have significant implications for markets. It would focus the spotlight on the number of bad loans in the Chinese banking system and lead to rising corporate defaults,” he said.
Mr Burgess also said increasing defaults could have a negative effect on commodity prices.
According to Mr Burgess, the possibility of the UK exiting the European Union is a driving factor in the slowdown in growth across Europe.
While the “mediocre” economic and corporate data coming out of Europe would ordinarily be concerning, Mr Burgess said it was still above trend when taking into consideration low levels of productivity.
He advised investors to keep an eye on global fiscal debt as well, noting that “net debt to GDP is near or at all-time highs in most countries”.
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