As with the current US political landscape, global investors have become increasingly polarised since our last publication, divided over whether there will be a ‘double dip’ back into recession or global growth is sustained, albeit at levels in the West which may only be marginally positive. But polarisation is also evident in a myriad of related issues. Should we be more worried by inflation or deflation? Should governments tackle their debt problems (Europe) or have a more Keynesian sense of ‘ease’ about deficit spending (the US)? Will the eurozone’s peripheral members default or take the pain? While we have staked out our own position on these issues, it is also our conviction that successful wealth management is really grounded in balancing probabilities, rather than betting the ranch on one outcome.
However, in order for investors to protect the real value of their wealth, taking no risk is not a smart strategy, even in today’s uncertain environment. As Carl Astorri highlights in this quarter’s Global Perspective, with interest rates set to stay extremely low for a sustained period of time, yield will become an increasingly valuable component of total return. In his UK Perspective, Alan Higgins discusses why commercial property is an attractive investment, while James Butterfill makes the case for income stocks in the Equity Perspective.
Economic power and capital is increasingly shifting east to countries with strong growth, fiscal balance and a strong currency. The combination of these three characteristics is increasingly important – and scarce in the developed bond and equity markets. This summer China overtook Japan as the world’s second largest economy, and in his Asian Perspective Norman Villamin looks at the prospects for an end to China’s policy tightening and the continuation of its economic recovery. Meanwhile, doubts linger over the strength of the US recovery and political stalemate from the US mid-term elections looks increasingly possible. In this environment, our expectation of positive economic statistics from China, wider Asia and emerging countries will be key to creating an environment for ‘risk on’ and a positive tone for capital markets for the balance of 2010.
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