As we begin 2012, the uncertainty that beset the global economy through much of 2011 looks set to continue. Driving this is a continued, synchronized, multi-year process of de-leveraging across much of the developed world, while the emergence of the consumer in the developing world carries on against this challenging backdrop. We continue to expect these themes to shape our investment decision making and strategy in the year ahead.
Along with these economic challenges, changes in political leadership may characterize much of 2012. European governments will begin the year assessing plans for closer fiscal union and deciding if this is an issue to be placed before their respective electorates. French and American citizens will decide on their next leaders, while China will see its own leadership transition after dramatic change over the past ten years.
The combination of these factors should keep volatility high for investors, continuing the trend of 2011. For investors seeking safety, we continue to view US Treasuries and UK Gilts as the core, global safe haven assets given our expectation that central banks will maintain a policy of low yields for longer. Gold remains core ballast in our client portfolios. However, investors in this historically staid metal should take note of the increased volatility over the past year.
For investors seeking returns above the historically low yields available on quality government bonds, we see value in investment grade corporate bonds, i.e. those with a minimum credit rating of BBB. Healthier balance sheets and better yields than government bonds should make investment grade corporate bonds a central part of portfolios in 2012.
Looking to equities, investors with longer investment horizons should be rewarded over a 3-5 year period despite the volatility that we expect to continue in 2012. This should play out most clearly in emerging markets as they assume the mantle of leadership for global growth in coming years. For medium-term investors, de-leveraging of western economies likely means equity returns will remain muted for 2012. However, a focus on dividend yields and quality, global franchises should help identify many of the best equity opportunities for investors in the new year.
Although we expect 2012 to be another year of challenge for the global economy, the Coutts team remains committed to maintaining clarity in our investment purpose and actively managing risks, while seeking innovative access to markets around the world, to help you meet your long-term investment goals.
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.
The information is believed to be correct but cannot be guaranteed. Any opinion or forecast constitutes our judgement as at the date of issue and is subject to change without notice. The analysis contained in this document has been procured, and may have been acted upon, by Coutts & Co and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law and without being inconsistent with any applicable regulation, neither Coutts & Co nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such analysis.
