Investment Strategy Paper
ISP Excerpt
Clear signs of more positive global economic news have emerged in recent weeks. But rather than proclaiming imminent economic recovery, we prefer to think of the outlook, at least initially, as looking “less bad” than it did a few months ago.
The better data has, however, given us more certainty that we will see continued global recession over the remainder of this year, although it will diminish in intensity as the year progresses. We expect a return to modest growth in 2010. This view is not without risks.
We continue to believe that we will avert a period of debilitating deflation and that inflation will re-emerge in time. This leaves central banks around the world with something of a dilemma: Tighten too soon and they snuff out a fragile economic recovery, tighten too late and they risk inflating another bubble. While time is on their side, it raises the broader issue of the inevitable withdrawal of the stimulus that has been injected into the global economy in recent months.
A move towards some kind of normality in credit markets has been one of the major developments since our last outlook.
This has given us more confidence that the process of gradually increasing exposure to risky assets is the right thing to do.
As a result, our portfolios are neutral on the growth/income split for the first time since 2007. This may seem pusillanimous, but it masks some larger positions within growth and income assets. For example, in the last few months we have doubled our benchmark exposure to emerging markets in our flagship balanced fund.
Developments in the US housing market have not been so promising, where it looks like further inventory needs to be worked off before prices stabilise. This has been an important indicator for us, given its relationship with consumer spending, financial sector balance sheets and hence lending. We will need considerable convincing to take large developed equity overweight positions while US house prices remain in rapid decline.
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For further information please contact:
Ralph Little, Spicers Public Relations
09 374 1845