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Market conditions reveal some advantages

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20/03/2008

Despite the collapse of Bear Stearns this week, some positive factors have come to light in the current market conditions, according to Alex Lyle, head of managed funds at Threadneedle.

Although the Bear Stearns situation is likely to have caused a negative effect on confidence, Lyle said the Federal Reserve’s strategy to boost liquidity and reduce interest rates by a further 0.75%, was swift and aggressive.

He said: “Recent figures on inflation from the U.S. have shown signs of improvement and the oil price has fallen from its peak. This reduces a constraint on the central bank’s ability to cut rates. Finally, and crucially, equity valuations are attractive.”

According to Lyle, equities currently offer value for medium term investors, in particular higher risk bonds, including investment grade, high yield and emerging market bonds.

He added: “These are all offering increasingly attractive spreads over government bonds. We believe the likely risks are fully discounted and these asset classes will show attractive returns over the medium term.”

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