Become a client
Click here to find out more
Contact us
Click here to find out more
Monthly Investment Strategy Update
The new year should usher in better fortunes for the world economy, but headwinds are likely to preclude a return to pre-crisis growth levels.
The prospects for the global economy in 2010 are brightening, with boosts from policy stimulus, inventory rebuilding and, for Asian economies, a recovery in world trade. That said, we expect the path of the recovery to be sawtoothed, with scope for the occasional quarter of economic contraction. The pace of growth is unlikely to match that of the precrisis boom years, with consumer de-leveraging, credit constraints and fiscal tightening expected to dampen momentum. Growth should also ease slightly from the second half as policy stimulus is replaced by private sector demand.
Find out more...
The prospects for the global economy in 2010 are brightening, with boosts from policy stimulus, inventory rebuilding and, for Asian economies, a recovery in world trade. That said, we expect the path of the recovery to be sawtoothed, with scope for the occasional quarter of economic contraction. The pace of growth is unlikely to match that of the precrisis boom years, with consumer de-leveraging, credit constraints and fiscal tightening expected to dampen momentum. Growth should also ease slightly from the second half as policy stimulus is replaced by private sector demand.
Find out more...
China is overtaking the US as the driver of global growth.
The US economy, traditionally the driver of global growth, appears to have transitioned from recession into recovery, although recent data has been mixed. This contrasts strongly with China, where recent statistics have exceeded market expectations. Indeed, whereas US economic activity remains significantly below pre-crisis levels, many indicators in China have surpassed their previous peaks.
Debt burdens - a legacy of the financial crisis - will suppress growth in major developed economies.
We continue to favour emerging market equities to developed markets, where the financial crisis has had the affect of suppressing longer-term relative growth prospects. The past 60 years’ history teaches that deleveraging the consumer, banking and public sectors of the developed economies will take six to eight years, while very high publicsector debt burdens have tended to shave about one percentage point from median growth rates. The corollary to weaker activity in high-debt economies such as Japan, the US, the UK, France, Spain and Greece will be higher average growth in economies with low debt ratios, such as China, Brazil, Australia and Norway.
Read more...
We continue to favour emerging market equities to developed markets, where the financial crisis has had the affect of suppressing longer-term relative growth prospects. The past 60 years’ history teaches that deleveraging the consumer, banking and public sectors of the developed economies will take six to eight years, while very high publicsector debt burdens have tended to shave about one percentage point from median growth rates. The corollary to weaker activity in high-debt economies such as Japan, the US, the UK, France, Spain and Greece will be higher average growth in economies with low debt ratios, such as China, Brazil, Australia and Norway.
Read more...
Growth has returned to the global economy, but will fall short of pre-crisis levels for some time.
The global economy is expanding once again, led by Asia and emerging markets. But the pace of recovery is slow and activity remains far below pre-crisis levels. Over the next few years, household and financial sector de-leveraging will exert considerable downward pressure on developed economy activity. Consequently, the pace of growth will not return to the rates experienced before the recession.
Find out more...
The global economy is expanding once again, led by Asia and emerging markets. But the pace of recovery is slow and activity remains far below pre-crisis levels. Over the next few years, household and financial sector de-leveraging will exert considerable downward pressure on developed economy activity. Consequently, the pace of growth will not return to the rates experienced before the recession.
Find out more...
The US and the UK appear to have joined the recovery in the third quarter...
The global and US recessions have ended. Germany, France and Japan returned to growth in the second quarter, and business surveys suggest US and UK growth resumed in the third. The initial quarters of recovery look set to be strong, with annualised US growth of around 4% quarter on quarter. After that, the pace of growth is likely to moderate, as the headwinds of consumer de-leveraging and credit constraints assert themselves.
Find out more...
The global and US recessions have ended. Germany, France and Japan returned to growth in the second quarter, and business surveys suggest US and UK growth resumed in the third. The initial quarters of recovery look set to be strong, with annualised US growth of around 4% quarter on quarter. After that, the pace of growth is likely to moderate, as the headwinds of consumer de-leveraging and credit constraints assert themselves.
Find out more...
The global slowdown appears to be abating, amid a pick-up in the hard data...
Asian and emerging markets are pulling the global economy out of recession. Although the rate of improvement varies from country to country, there is now widespread survey evidence that the global slowdown is abating. Moreover, we are finally seeing an improvement in the hard data, with clear signs that global industrial production is stabilising after falling 13% between last September and the end of March.
Find out more...
Asian and emerging markets are pulling the global economy out of recession. Although the rate of improvement varies from country to country, there is now widespread survey evidence that the global slowdown is abating. Moreover, we are finally seeing an improvement in the hard data, with clear signs that global industrial production is stabilising after falling 13% between last September and the end of March.
Find out more...
The recession seems to be nearing an end, so inflation risks are set to become a concern.
Policy is finally starting to gain traction. Increasingly, the evidence from surveys suggests that the global slowdown is moderating and that we are in the final phase of a long recession, not in the midst of a depression. Indeed, our longstanding forecast that growth will return to the US in the third quarter of this year and to the UK early next year may prove to have been too pessimistic. As evidence of policy traction continues to mount, investors will start to worry about potential inflationary pressure, rather than the tail risk of a depression.
Find out more...
Policy is finally starting to gain traction. Increasingly, the evidence from surveys suggests that the global slowdown is moderating and that we are in the final phase of a long recession, not in the midst of a depression. Indeed, our longstanding forecast that growth will return to the US in the third quarter of this year and to the UK early next year may prove to have been too pessimistic. As evidence of policy traction continues to mount, investors will start to worry about potential inflationary pressure, rather than the tail risk of a depression.
Find out more...
Signs continue to mount that the global slowdown is abating and that we are in the final phase of a long recession, not in the midst of a depression
As a result, we are increasingly confident that the global economy will bottom late this year. The OECD’s leading indicators of growth have turned up, albeit from very low levels, especially in Asia. Purchasing Managers’ Indices have risen further, led by new orders, and we expect them to rise again in the months ahead. The pace of job losses in the UK and the US shows signs of slowing. In the past, that has happened close to the low point of the cycle. This, along with stronger equity markets, has helped to stabilise consumer confidence as concerns about unemployment have started to fall from historically high levels. There is also evidence of a gradual thawing of credit markets, and fewer banks are tightening lending conditions.
Find out more...
As a result, we are increasingly confident that the global economy will bottom late this year. The OECD’s leading indicators of growth have turned up, albeit from very low levels, especially in Asia. Purchasing Managers’ Indices have risen further, led by new orders, and we expect them to rise again in the months ahead. The pace of job losses in the UK and the US shows signs of slowing. In the past, that has happened close to the low point of the cycle. This, along with stronger equity markets, has helped to stabilise consumer confidence as concerns about unemployment have started to fall from historically high levels. There is also evidence of a gradual thawing of credit markets, and fewer banks are tightening lending conditions.
Find out more...
Economic recovery has yet to materialise. What we are witnessing is a slower pace of contraction...
Last month’s Update started by highlighting the fact that we had seen some encouraging initial signs that the global economy might be stabilising. Over the past month, press articles and politicians have been trumpeting signs of the 'green shoots of recovery' increasingly loudly. But it is important to keep things in perspective. While several surveys of economic activity have stopped falling or even started to rise, the vast bulk of them remain at levels consistent with the global economy continuing to contract – albeit at a slower pace than at the turn of the year – rather than returning to outright growth.
Find out more...
Last month’s Update started by highlighting the fact that we had seen some encouraging initial signs that the global economy might be stabilising. Over the past month, press articles and politicians have been trumpeting signs of the 'green shoots of recovery' increasingly loudly. But it is important to keep things in perspective. While several surveys of economic activity have stopped falling or even started to rise, the vast bulk of them remain at levels consistent with the global economy continuing to contract – albeit at a slower pace than at the turn of the year – rather than returning to outright growth.
Find out more...
We may be seeing some green shoots of recovery, propagated by Chinese policy...
Over the past month, there have been some encouraging initial signs that the global economy may be stabilising after lurching down again after the collapse of Lehman brothers last September. In recent weeks, copper prices have moved higher, oil has made a three-month high, and Baltic freight rates have more than doubled from historically low levels. More importantly, beyond these market data points, some of the economic activity numbers are showing initial signs of stabilising – critically the US and Chinese purchasing managers’ indices, but also the German Ifo survey of business confidence as well as US housing starts. The rise in the copper prices and freight rates, along with the Chinese purchasing managers’ index, probably reflects actions taken by the Chinese authorities to reflate their economy. As a still largely command economy, China can implement fiscal measures quickly and mandate its banks to lend. Western democracies have to engage in the slower process of consensus building and political debate.
Find out more...
Over the past month, there have been some encouraging initial signs that the global economy may be stabilising after lurching down again after the collapse of Lehman brothers last September. In recent weeks, copper prices have moved higher, oil has made a three-month high, and Baltic freight rates have more than doubled from historically low levels. More importantly, beyond these market data points, some of the economic activity numbers are showing initial signs of stabilising – critically the US and Chinese purchasing managers’ indices, but also the German Ifo survey of business confidence as well as US housing starts. The rise in the copper prices and freight rates, along with the Chinese purchasing managers’ index, probably reflects actions taken by the Chinese authorities to reflate their economy. As a still largely command economy, China can implement fiscal measures quickly and mandate its banks to lend. Western democracies have to engage in the slower process of consensus building and political debate.
Find out more...
De-leveraging is taking its toll on output, and history suggests it has further to run.
Over the past ten years, financial deregulation and low interest rates fuelled a rise in leverage which in turn enabled the global economy to enjoy strong, synchronised growth. The credit crunch has thrown that leverage machine into reverse. An examination of the aftermath of previous severe financial crises shows that they tend to have deep and lasting effects on asset prices, output and employment. Rises in unemployment and house price declines have on average lasted five and six years, respectively. By contrast, declines in output average a relatively modest two years. So, even recessions sparked by financial crises eventually end, though almost invariably accompanied by massive increases in government debt.
Find out more...
Over the past ten years, financial deregulation and low interest rates fuelled a rise in leverage which in turn enabled the global economy to enjoy strong, synchronised growth. The credit crunch has thrown that leverage machine into reverse. An examination of the aftermath of previous severe financial crises shows that they tend to have deep and lasting effects on asset prices, output and employment. Rises in unemployment and house price declines have on average lasted five and six years, respectively. By contrast, declines in output average a relatively modest two years. So, even recessions sparked by financial crises eventually end, though almost invariably accompanied by massive increases in government debt.
Find out more...
The recession has intensified and spread, with the US unlikely to return to growth before the third quarter.
This recession is set to be the worst since the Second World War. Data releases in recent weeks suggest that the recession gathered pace in the later stages of last year and has become truly global, reflecting the trade and financial market linkages that now bind the fates of nations closely together. Thanks to aggressive fiscal and monetary policy in the US – which includes the increasing use of quantitative easing – recovery should come first there. But that is unlikely to be until the third quarter of this year, at the earliest. What growth there is in the second half of the year will be driven by government, rather than the private sector. But, despite the contraction of the banking sector, the private sector should not be written off altogether, given the boost consumers are receiving from lower oil prices and mortgage rates.
Find out more...
This recession is set to be the worst since the Second World War. Data releases in recent weeks suggest that the recession gathered pace in the later stages of last year and has become truly global, reflecting the trade and financial market linkages that now bind the fates of nations closely together. Thanks to aggressive fiscal and monetary policy in the US – which includes the increasing use of quantitative easing – recovery should come first there. But that is unlikely to be until the third quarter of this year, at the earliest. What growth there is in the second half of the year will be driven by government, rather than the private sector. But, despite the contraction of the banking sector, the private sector should not be written off altogether, given the boost consumers are receiving from lower oil prices and mortgage rates.
Find out more...
Concerns are growing about deflation, especially in the US economy...
The worsening growth outlook in most regions over recent months has shifted investors’ focus for 2009 on to the prospects for deflation - especially in the US, where October's CPI inflation ex-food and energy was negative, for the first time since 1982.
Find out more...
The worsening growth outlook in most regions over recent months has shifted investors’ focus for 2009 on to the prospects for deflation - especially in the US, where October's CPI inflation ex-food and energy was negative, for the first time since 1982.
Find out more...
Market Information
Keep up to date with UK listed company share prices, stock market indices and financial news.
Further Information
To view these reports you will need Adobe Reader.
Click here to download Adobe Reader.
