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Macroeconomic Outlook
While a few major western economies, notably France and Germany, have already exited recession, economic recovery is likely to be a slow process for most of the developed world in 2010. Corporate and consumer indebtedness is a major problem in the US and continental Europe. This high level of debt is stifling demand, meaning economic growth will not recover fully until debt is brought under control.
Despite the growth that is continuing in emerging markets, the US economy remains hugely important in determining the direction of the global economy, and until the US begins to resolve its problems, conditions will remain testing.
I expect the European Central Bank and US Federal Reserve to continue with loose monetary conditions and economic stimulus measures (the US bailout effort already totals US$12.8 trillion). Interest rates around the world remain low in general although policy differences between some countries have already emerged, with Australia and Norway increasing their rates recently. Such divergence may increase in 2010 and have a subsequent effect on currency markets.
Which Global trends are giving to good investment opportunities?
Emerging market demand leads me to favour developing markets over western markets in general for 2010. These countries benefit from structural long-term economic growth and lower levels of indebtedness. While many things in the west are uncertain – the outcome of quantitative easing, for example – the strong competitive advantage China and other emerging markets have over western economies is certain. Those lowly-leveraged economies with burgeoning populations are on a growth path that should continue irrespective of whether our economies recover or not.
Which asset classes will outperform?
I expect “real assets” such as equities, property and commodities to be the winners of the ongoing loose financial conditions in 2010.
Equities remain cheap relative to long-term averages, despite valuations having recovered a long way in a short period of time (the UK stockmarket is up around 50% from its low point in March this year). Equities are real assets which have been historically proven to grow investors’ money over the long term. What is more, some companies’ shares are yielding more than their own bonds, representing a reversal of historically normal patterns.
· Within the asset class, considering the large rises in the valuation of cyclicals, I prefer large-cap global defensives along with more basic industrial firms. Examples include Johnson & Johnson, whose collection of brands with global reach is second to none; and pharmaceuticals giant GlaxoSmithKline, whose product pipeline is one of the best in the industry.
Commercial property is increasingly attractive due to high yields and early signs of improving fundamentals. Commercial property also represents a real asset which should produce good returns in the medium to long term.
Commodities represent a compelling long term investment area, boosted by finite supply and the balance of global growth tilting toward nations like China, India and Brazil, and the associated rise in demand for basic resources. I expect demand for infrastructure development will drive commodity markets higher over the long term.
· I believe gold remains attractive given ongoing high levels of uncertainty in global markets.
What areas should investors avoid in 2010?
Sterling and US dollar based assets are likely to suffer due to the risk of further quantitative easing, the indebted state of public finances and the poor economic outlook. A long period of low UK interest rates and continued money printing from the Bank of England is unlikely to help the pound.
· However, my negative view on sterling does not include UK equities, which I am positive on owing to their status as a real asset offering attractive long term returns as well as the very international nature of the UK stockmarket. Most FTSE 100 companies are large global bluechips which generate significant revenue outside the UK and are not dependent on the UK consumer, nor are they overly exposed to the pound’s value falling.
Cash still offers a very low return, and this asset class (along with western world government bonds) is at risk of currency debasement and, in the longer term, higher inflation that may be caused by too much quantitative easing.
A propos de M&G Investments
M&G est l’une de plus importantes sociétés de gestion d’actifs européennes. Fondée en 1901, elle gère près de 185 milliards d’euros d’encours (fin septembre 2009). M&G Investments a pour principal objectif d’optimiser la valeur des actifs de ses clients par le biais d’une gestion active. Cette philosophie se traduit par les remarquables performances de sa gamme de fonds. En mars 1999, M&G Investments a été racheté par le groupe financier international Prudential plc. En février 2001, M&G a commencé à développer son activité de distribution de fonds à l’international en Europe et en Asie. M&G Investments a ouvert son bureau à Paris en septembre 2007.
While a few major western economies, notably France and Germany, have already exited recession, economic recovery is likely to be a slow process for most of the developed world in 2010. Corporate and consumer indebtedness is a major problem in the US and continental Europe. This high level of debt is stifling demand, meaning economic growth will not recover fully until debt is brought under control.
Despite the growth that is continuing in emerging markets, the US economy remains hugely important in determining the direction of the global economy, and until the US begins to resolve its problems, conditions will remain testing.
I expect the European Central Bank and US Federal Reserve to continue with loose monetary conditions and economic stimulus measures (the US bailout effort already totals US$12.8 trillion). Interest rates around the world remain low in general although policy differences between some countries have already emerged, with Australia and Norway increasing their rates recently. Such divergence may increase in 2010 and have a subsequent effect on currency markets.
Which Global trends are giving to good investment opportunities?
Emerging market demand leads me to favour developing markets over western markets in general for 2010. These countries benefit from structural long-term economic growth and lower levels of indebtedness. While many things in the west are uncertain – the outcome of quantitative easing, for example – the strong competitive advantage China and other emerging markets have over western economies is certain. Those lowly-leveraged economies with burgeoning populations are on a growth path that should continue irrespective of whether our economies recover or not.
Which asset classes will outperform?
I expect “real assets” such as equities, property and commodities to be the winners of the ongoing loose financial conditions in 2010.
Equities remain cheap relative to long-term averages, despite valuations having recovered a long way in a short period of time (the UK stockmarket is up around 50% from its low point in March this year). Equities are real assets which have been historically proven to grow investors’ money over the long term. What is more, some companies’ shares are yielding more than their own bonds, representing a reversal of historically normal patterns.
· Within the asset class, considering the large rises in the valuation of cyclicals, I prefer large-cap global defensives along with more basic industrial firms. Examples include Johnson & Johnson, whose collection of brands with global reach is second to none; and pharmaceuticals giant GlaxoSmithKline, whose product pipeline is one of the best in the industry.
Commercial property is increasingly attractive due to high yields and early signs of improving fundamentals. Commercial property also represents a real asset which should produce good returns in the medium to long term.
Commodities represent a compelling long term investment area, boosted by finite supply and the balance of global growth tilting toward nations like China, India and Brazil, and the associated rise in demand for basic resources. I expect demand for infrastructure development will drive commodity markets higher over the long term.
· I believe gold remains attractive given ongoing high levels of uncertainty in global markets.
What areas should investors avoid in 2010?
Sterling and US dollar based assets are likely to suffer due to the risk of further quantitative easing, the indebted state of public finances and the poor economic outlook. A long period of low UK interest rates and continued money printing from the Bank of England is unlikely to help the pound.
· However, my negative view on sterling does not include UK equities, which I am positive on owing to their status as a real asset offering attractive long term returns as well as the very international nature of the UK stockmarket. Most FTSE 100 companies are large global bluechips which generate significant revenue outside the UK and are not dependent on the UK consumer, nor are they overly exposed to the pound’s value falling.
Cash still offers a very low return, and this asset class (along with western world government bonds) is at risk of currency debasement and, in the longer term, higher inflation that may be caused by too much quantitative easing.
A propos de M&G Investments
M&G est l’une de plus importantes sociétés de gestion d’actifs européennes. Fondée en 1901, elle gère près de 185 milliards d’euros d’encours (fin septembre 2009). M&G Investments a pour principal objectif d’optimiser la valeur des actifs de ses clients par le biais d’une gestion active. Cette philosophie se traduit par les remarquables performances de sa gamme de fonds. En mars 1999, M&G Investments a été racheté par le groupe financier international Prudential plc. En février 2001, M&G a commencé à développer son activité de distribution de fonds à l’international en Europe et en Asie. M&G Investments a ouvert son bureau à Paris en septembre 2007.
