Threadneedle's Brazier fears equity rally 'unsustainable'

ON UK GROWTH

Threadneedle's Simon Brazier has cautioned investors on the outlook for UK equities, warning the continued rise in bond yields and higher valuations have limited the upside from here.

We believe that three main factors are behind the UK market’s rally over the past 12 months: quantitative easing, the fact that equities were fundamentally cheap and the broad strength we have seen in company earnings. However, having been constructive for some time, we have become more cautious over recent months. Though still low in historic terms, May’s rise in government bond yields is a reminder that any sustained rally in yields could have a dampening effect on equities. Yields could rise further for several reasons, either due to rising inflation or greater confidence in the ou...