Tell me moreInvestment View 2012
2012 Outlook for Investment
Customers
The optimism that marked the opening of the year for financial markets is fading as a re-emergence of euro-zone sovereign debt concerns and fresh caution over the path of global economic growth rein in sentiment. After a profitable first quarter for risk assets – fuelled by improvement in the world economy (notably the US) and a wave of liquidity from central banks, not least the European Central Bank’s provision of €1trn in funds to European banks – April is proving challenging. The ECB’s liquidity boost appears to be wearing off as now Spain moves to the epicentre of investor concerns; even the most austere budget in a generation may not prove sufficient to cut Spain’s deficit to agreed targets given the dismal growth outlook. At the same time the pace of job creation in the US slowed sharply in March, reigniting uncertainty about the economy. While we expect the US recovery to continue, it must be noted that this is taking place against a backdrop of massive de-leveraging in the developed world. This will keep developed-world growth – including the US – sluggish and vulnerable to shocks. In light of this, we expect the Bank of England, the Bank of Japan and the European Central Bank to continue loosening monetary policy this year to shore up growth, including rate cuts in the euro-zone.
While we have a longer-term constructive view on risk assets, there are a welter of potential challenges ahead, including higher oil prices, further potential flare ups in the euro-zone debt crisis and fiscal tightening in the US. We continue to favour emerging equity markets, based on attractive valuations, higher growth prospects – with China expected to deliver growth of some 8% in 2012 as it engineers a ‘soft landing’ – and the move to an easing bias in monetary policy. Elsewhere, we retain our focus on dividend growth, as well as companies with competitive advantages and strong balance sheets. Within fixed income, our preference for quality corporate bonds remains, given healthier balance sheets and a yield advantage over government bonds. Our expectation of continued, albeit bumpy, economic growth, suggests high yield is also an attractive sector, but the focus should be on the better quality segment of around BB grade.
Important Information
The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance should not be taken as a guide to future performance. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. The information in this document is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation.