An increasingly ‘two-speed’ global economy demands that investors revise their portfolios sooner rather than later, an expert warns.
Nigel Green, CEO of deVere Group, a financial advisory and asset management company, said: “The global financial environment – which is, of course, influenced by varying economic conditions and policy responses – is becoming increasingly complex due to diverging growth trajectories.”
Mr Green noted that the US economy continues to demonstrate “surprising resilience”, which has significant implications for investors.
He said: “The Federal Reserve’s commitment to a higher-for-longer interest rate path, which is intended to keep inflation in check, of course means that borrowing costs remain elevated.
“With higher interest rates investors are likely to find opportunities in financial stocks and sectors that benefit from a stronger dollar, such as imports, travel and consumer discretionary.”
However, he pointed out: “Investors should be cautious about companies with significant debt exposure, as their cost of financing will be high, potentially squeezing margins and profitability.”
Contrasting the scenario in the US, the eurozone is on the cusp of what could be its first interest rate cut of the year.
Mr Green said: “We expect the European Central Bank (ECB) to announce this in June, which will encourage investment and spending.
“It’ll be positive for equities, particularly in sectors like real estate, utilities, and consumer goods.
“However, the underlying reason for the rate cut – sluggish economic growth, also signals caution. European companies may face headwinds from subdued demand and potential deflationary pressures, which could dampen revenue growth and profit margins.
“A weaker euro, as a consequence of lower interest rates, could also impact companies that rely heavily on imports, increasing their costs.”
In the UK, recent improvements in consumer confidence and a near three-year low inflation are positive signals for investors.
Mr Green said: “Improved consumer confidence will drive higher spending, benefiting retail and consumer goods companies. The reduction in inflationary pressures can also alleviate cost pressures on businesses, potentially enhancing profit margins.”
However, Mr Green urged that the divergence in economic performance and monetary policy among major economies means investors could adopt a more nuanced and diversified approach to “sidestep” any risks.
He explained: “A two-speed global economy means that investment strategies must be tailored to specific regional conditions and their policy environments.”
Mr Green said investors could consider diversifying their portfolios across various regions, asset classes, and sectors.
He added: “We would urge investors to revise their portfolios at their earliest convenience to sidestep risks and capitalise on the new opportunities to build wealth.”
