Legal & General Investment Management warns of market turbulence ahead

At a Fundamentals briefing James Carrick stated that government bond yields have risen above the long-run rate of economic return in the developed world for the first time since 1999, increasing the risk of financial market turbulence.

In the absence of any financial market shock, global growth should hold up well, buoyed by booming emerging markets and compressed credit spreads. But the fundamentals for credit markets are deteriorating.

Risk-free rates are rising as governments try to slow economies, corporate debt is rising rapidly and profits should be harder to come by as rising resource utilization rates bid up the price of commodities, capital equipment and labour.

James Carrick, Investment Strategist at Legal and General Investment Management said "In recent years, a combination of low interest rates, ample spare capacity and strong growth have boosted a wide variety of asset classes. But investors need to be more choosy now as interest rates have risen to levels that have historically created turbulence. In this environment we favour equities over credit, large cap stocks over small caps, resources stocks over financials and growth stocks over those paying high dividends.”