Equities good value and set to grow

Despite a rocky few months, equities are still good value and stock markets are set to grow again, experts have said.

"Having begun the year well, markets entered choppy waters over the summer as concerns over the US housing market, inflation and tension in the Middle East eroded risk appetite," said Michael Taylor, head of equities at Threadneedle investments.

He pointed out that, despite a recent sell-off by investors in the UK and overseas, the economic situation is improving, interest rates are still low, and the fundamentals of the markets are strong.

"When volatility rose in the summer we re-examined our views and concluded that the fundamentals were still intact," Mr Taylor explained.

"With the UK on 12 times next year's earnings and other markets not far behind, equities are good value.

"Companies have been telling us that operating conditions are strong and this has been borne out in Q2's earnings numbers.

"Risk appetite is returning now and volumes are likely to pick up as people come back from their holidays. This is a positive combination for equity markets."

And as well as being good news for investors in equities, the future for bonds is also looking rosy.

"Economic releases seem to be vindicating our view of a global economy that is neither too hot nor too cold," Mr Taylor explained.

"The return of Goldilocks is good news for investors in bonds, because inflation and interest rate fears will not push yields higher."

However, while the UK is in relatively good shape - the best returns could be found elsewhere.

"If we look at the likely environment into the year-end - inflation moderating, interest rate concerns ebbing away, strong growth out of Asia, risk appetite returning - emerging markets and Asian equities could do very well," Mr Taylor said.

"Emerging markets are on a PE [price of stock divided by earnings per share] of ten times and aggregate earnings growth is 20 per cent.

"There is scope for the PE to expand, so returns could be impressive over the next twelve months.

"But it's not just emerging markets. I think that equity investors in general have plenty to be optimistic about and this could be a great buying opportunity."