Russell Investments has released its latest quarterly outlook for the global capital markets, predicting modest gains for equity markets and higher bond yields in 2014 as the world’s major economies continue to grow.

“As we look toward 2014 we’re forecasting synchronized growth across the United States, Japan and Europe for the first time since 2010,” said Andrew Pease, global head of investment strategy at Russell. “We also see a strengthening low-inflation recovery that favors equities over bonds, despite relatively full equity market valuations.”

Quantitative easing (QE) in the U.S. has had little influence on the portfolio weighting guidance suggested by Russell’s investment strategists. When the winding down of QE eventually happens, they expect it to trigger some market volatility; however, they do not believe the U.S. Federal Reserve has significantly distorted asset prices. In fact, they see little evidence that QE has pushed asset prices beyond levels that can be justified by the current combination of stable economic growth, low inflation and moderate corporate earnings growth.

Canadian equities, which rallied strongly in the third quarter as gold and oil prices rose on geopolitical tensions, are expected to pull back slightly over the remainder of the year. Shailesh Kshatriya, associate director, client investment strategies at Russell Investments Canada Ltd. in Toronto, notes that Canadian equities are currently trading at a higher price-to-earnings ratio than U.S. or emerging markets equities.

“We deem the premium multiple as unwarranted,” Kshatriya said. Although crude oil prices have moved higher, there is still significant volatility in the spread between Western Canada Select (WCS) versus its American counterpart West Texas Intermediate (WTI), which he expects to continue until there is expanded pipeline capacity.

This includes “improving capacity within Canada’s borders (i.e., west-east pipeline), extending capacity to the U.S., as well as shipments offshore. The increased news flow regarding all three options has been encouraging; however, concrete developments leading to actual “ground breaking” has yet to materialize in a meaningful way,” he noted.

Russell’s strategists also offer a look at key global asset class pairings to determine which asset class in each pair currently signals better return prospects. Their model currently signals a preference towards International equities relative to Canadian equities, and towards Canadian equities relative to fixed income.

Headquartered in Seattle, Russell has more than $253.7 billion in assets under management (and works with over 2,500 institutional clients, independent distribution partners and individual investors globally.