Key Investment Themes for 2011
Globalisation has long been understood to have underwritten much of the prosperity enjoyed since the late 1980s, as resultant low inflation facilitated low interest rates and abundant credit fuelled a golden era of consumption, especially in the West. Of course, it all ended in great drama with the Credit Crisis, but two years on a new world order can be discerned emerging from the rubble. It is markedly different - the world has spun on its axis and it is centred on Asia.
The power of globalisation remains as intense as ever as we approach 2011, but many Western leaders are probably wishing that at least some aspects of the globalisation ‘genie’ could be pushed safely back into the bottle. The positive trends of fiscal balance, growth, savings, rising living standards and favourable demographics have all moved east to favour Asia and the emerging world, leaving the West with an austerity headache.
The implication of this change in economic leadership is as significant for investors as it is for politicians. Prior to 2008, investors in Western property, private equity and other alternatives all enjoyed a golden age of returns, revved up by falling interest rates and abundant credit. Most of these asset classes are now nursing a hangover and are de-leveraging.
New era
One of the truths of the new era is that the starting point for setting sustainable, long-term return expectations should be more modest, anchored in single digits – this is what we expect from developed equity markets, for example. The challenge is to identify a new universe of opportunities that can deliver higher returns based this time on growth, productivity and an appropriate risk premium, rather than primarily reliant on leverage.
We view this as a sound starting point from which to explore strategies and opportunities for investing to preserve and enhance wealth, which is at the heart of our investment proposition and is the focus of this document.
It is hoped that the 2011 Investment Outlook provides you with an interesting and insightful analysis on a range of themes, giving a guide to how we view the investment world – its opportunities and risks – and how this will inform our management of our clients’ portfolios.
Summary
We expect 2011 to be another positive year for risk assets as the global economy continues to heal, but returns will not match 2010.
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