Ashburton increases its investment in equities following market ‘turning point’

Ashburton believes that the prospects for equities are more favourable than they have been for sometime.

Peter Lucas (picturedright) , Global Investment Strategist for Ashburton, said that mid-March had been a significant turning point for the markets.

“The US dollar has recovered, bonds have sold off and equities have enjoyed their best period since the third quarter of last year. The key to these trends has been the Federal Reserve in the US shoring up confidence in the banking sector. Earlier this year the banks were caught in a vicious spiral of deteriorating profitability, weaker balance sheets and increasing funding costs. The Fed has broken this cycle with the result that the bank bond spreads have tightened considerably.”

For Ashburton to consider increasing its weightings in the equity markets, it was looking for three trigger points in the markets, namely:

· A break in the S&P 500 above its early February highs.

· Clear signs of a bottom in the US dollar and at least a short-term top in the oil price.

· A break of trend in US 10-year bond yield.

Lucas said that in the past few weeks, these triggers have begun to be met but he added that the one “fly in the ointment” remained the high oil price. Nevertheless, he believes that the dollar’s recent recovery may kick start a virtuous circle of stronger dollar, weaker oil price, rising confidence and rising bond yields, all leading to a stronger dollar. Although there is no evidence of this yet, it is still seen as a real possibility.

As a result of these series of positive developments, Ashburton has increased its equity weightings in its Asset Management Service and one of its Advanced Portfolio Funds.