Outlook for second half: sweet with a dash of sour

If policymakers across the world were to highlight the single most important challenge facing them today, likely all would identify - in one form or another - the perplexing issue of growth. Europe has too little of it; China has too much of it; Japan has none of it; and, as usual, the mighty US economy appears to have not too much, not too little, but just about enough.

The apparent fixation on growth has important consequences for investors, not least the fact that markets are driven by central banks, specifically that wily scheme known as quantitative easing, which we will just call money printing.

The push towards money printing is largely responsible for the distortions that now challenge investors.

It explains why the equity markets of most growth-poor Group of Seven nations are at all-time highs; and why the equity markets of most growth-rich emerging nations have underperformed. It explains why the lowest bond yields in the world are often linked to developed nations with the highest debt levels. And it explains why, globally, yield-rich defensive stocks (think utilities) have convincingly outperformed cyclical ones (think airline stocks).

So exactly how should investors position themselves? If we had asked the same question in the three years after the Lehman crisis, the answer would have been simple. When central banks injected liquidity, you bought; and when they eased off, you sold.

During the first half of 2013, however, things have gotten a little more complicated. There are increasing signs that the third round of the Fed's money printing is mostly going to domestic assets - such as housing - thereby boosting US growth and corporate earnings. As a result, US equities have outperformed their emerging-market counterparts.