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PFA expects equities to stay supported through 2017

Denmark’s largest commercial pension fund expects equity prices to remain underpinned by the global economic recovery for the rest of this year.

Henrik Henriksen, chief strategist at PFA, which manages assets of around DKK600bn (€80.5bn), described 2017 as a turning point for companies around the world.

He said: “The US recovery is in the mature phase, and US stocks are priced at high levels, but our main scenario is that the global recovery will continue to support the shares in 2017.”

Earnings had risen in all regions for the first time since 2010, the pension fund said. In combination with a simultaneous recovery of economic activity in both developed and emerging economies, this was positive for stock market developments, PFA said.

Henriksen said equity market drivers had now changed: while low interest rates and share repurchases had supported shares for several years after the financial crisis, business growth was now also increasing and shoring up the stock market’s valuation.

Henriksen predicted that this pattern could continue, arguing that the European economy had finally caught up with the pace of that of the US. Growth in Europe was higher in the first half of this year than it was across the Atlantic.

“There is a basis for the positive development to continue,” he said. “Confidence in households and businesses is at the highest level since the financial crisis, and for the first time since 2010, we have global dynamics where rising employment is positively impacting on consumption and housing markets, and it gives businesses more appetite to invest.”

Inflationary pressures were still lower than the central banks’ target, he added, which meant that monetary policy would continue easing in the near future.

But there were also risks, he said: “Debt is high in Western economies, China’s growth model is largely debt-bearing, and central banks in the US and Europe will gradually make monetary policy less easy.”

The US Federal Reserve has indicated plans to run down its stock of US Treasuries, bought through its quantitative easing programme, from later this year.

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