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Economic recovery remains on track, says Skandia

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Despite pausing for breath in October equity markets are expected to resume their upward march into year-end, according to Skandia Investment Group’s latest monthly asset allocation report.

Most equity markets fell in October, the first monthly declines since February.

The falls were generally modest and were led by falls in the banking sector on fears that reforms introduced in response to the economic and financial crises of the last few years will undermine bank profitability.

However, markets remain sharply higher on the year so far, although remain below the levels seen at the time of Lehman’s demise.

SIG chief investment officer James Millard says: “We expect markets to resume their upward march into year-end, with small caps continuing to outperform as financing conditions continue to ease and investors increase their exposure to riskier assets.

“While bond yields rose slightly in October as signs of economic recovery continued, we expect them to remain low as the world’s large central banks keep interest rates at close to zero per cent. We also continue to expect corporate and EMD bonds to outperform government bonds, although the rate of spread contraction should slow given the sharp contraction already seen.”
 
Skandia has increased exposure to the energy sector as the ongoing economic recovery gives oil more upside than downside risk. It also remains overweight in financials, where consensus continues to hold a large underweight.

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