Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Stephanie Flanders, chief market strategist for JP Morgan. Hello, Stephanie.
Stephanie Flanders: Hi. Wall: So, we're here at the Morningstar Investment Conference in London and you're about to give a talk on the outlook for the global economy. Growth has slowed. Should investors be concerned?
Flanders: Well, I think we had that wobble in global markets that was partly about signs of weakness in the global economy. We were worried about China at the start of the year. We were worried about the weakness in manufacturing. I think a lot of those fears have abated. There seems to be sign of sort of stabilization in China and indeed, in global manufacturing. But I think we still are seeing a sort of notably weaker picture than we were hoping for which is a similar picture we've seen for the last few years, so weaker but not necessarily causing too much worry.
Wall: So, recession fears are off because in February a lot of people were talking about a US-led recession?
Flanders: Well, I think when we look at the US, it is hard to see an imminent recession and the strength of the labour market, the fact that inflation is now picking up slightly. But I think it is the case that services, which is the key driver of the economy, the developed market consumer and services side of the economy, that is a bit weaker than we hoped and we're keeping a close eye on that because it is such a fundamental driver for this upturn.
Wall: Of course, it's slow growth, low growth across the world, but a lot of equity markets are still looking quite expensive. One exception to that rule perhaps is emerging markets and you're saying that actually now is quite interesting time to be considering them again?
Flanders: Well, I think when we came into this year actually we thought particularly when valuations hit a real low in the mid-January when you remember emerging markets had that sort of biblically bad start to the year. I think we've said at that time we thought it was a dangerous time, particularly for active managers to be underweight emerging markets because it did feel like we were getting close to a bottom and when you have that upturn begin, you don't much warning. You can't be in your most conservative position. I think that's been borne out maybe even more than we expected by the big jump in emerging markets since then. We don't see the signs of a fundamental recovery in the emerging markets. We still see challenges for the return on capital there and for corporate earnings. But certainly, it feels like we may have hit the bottom at the start of the year and again, going forward, it should be a time when you're looking for opportunities in emerging markets, especially if we see these sort of global trends of a more stable dollar and a more stable even rising commodity prices continue then that would make it a good time for emerging markets.
Wall: There's still quite a challenging environment across the globe for investors?
Flanders: I think that the fundamental question for investors is, can the Fed get back on course for raising interest rates as we would hope and expect in the second half of the year without the positive trends we've seen in the first half of the year unwinding, whether that's the stable dollar, the rising energy price, or the strength in emerging market economies, the appetite for risk, will all of that unwind if the Fed starts to talk about rate rises again or are we now in a better stage of the cycle?
Wall: Stephanie, thank you very much.
Flanders: Thanks a lot.
Wall: This is Emma Wall for Morningstar.