FXStreet reports that economists at Capital Economics continue to expect developed market (DM) equities to gain ground in the rest of this year.

“Our forecast is for DM government bond yields to fall back a bit this year. And even if yields were to rise further, we suspect that this would be driven mainly by rising inflation compensation, which tends to have a benign impact on equity prices. 

“We wouldn’t rule out some further small increases in equity valuations, especially outside the US, where they are generally lower. More importantly, we expect an increase in firms’ earnings as the economy continues to recover from the coronavirus shock to push equities higher. Indeed, we think that the lifting of most restrictions on activity in DMs as vaccinations progress, together with extremely loose monetary and fiscal policy, will cause the global economy to grow strongly this year.”

“We forecast gains of 6-18% in MSCI’s indices for major DMs in the remainder of this year. We also anticipate that the MSCI USA index will generally underperform MSCI’s indices for other DMs.”