The short-term drivers of UK equities

ON UK EQUITIES

The main unanswered question governing the short-term outlook for the UK stock market relates to the transition from a market driven by quantitative easing to one driven by the strength of the underlying economy.

The strong performance of global markets over the previous 12 months has been notably related to the significant increases in monetary stimulus and liquidity from the US and Japanese central banks. While corporate profits have remained broadly unchanged, equities have been re-rated to a level which anticipates upgrades to earnings expectations for 2014 and beyond. Companies delivering sustainable growth in cash flow and dividends have potential to deliver good long-term risk adjusted returns. The market rise has been accompanied by some underlying improvement in economic growth, but t...