With January behind us, we can sensibly discuss how global markets should expect to perform in 2010.
Firstly, the US housing market (where all the recent problems began) is improving. The recovery from recession is likely to exceed forecasts although developed nation’s banks need to increase lending to business. The problem is that those banks have had an expensive reminder on the dangers of leverage and are re-building their balance sheets.
The ray of sunshine has been emerging markets. As remarked in earlier notes, these markets have few problems in common with Western economies. 2009 saw terrific growth in most EM markets which was welcome but leads to two current doubts. First, that the whole world is now very dependent on emerging markets for growth and, second, they are unlikely to grow at that rate indefinitely.
In bond markets, corporate bonds have given their best. Values remain reasonable offering investors attractive yields whilst UK government bonds are unattractive. For the Government to find an extra £170 billion in 2010 higher rates of interest might have to be offered to investors which will impact prices.
Equities in most markets are now at sensible valuation levels after the recovery in 2009. With the exception of the financial sector, corporate profits are rising, making shares attractive for those investors seeking income or steady growth.
Currency markets should see a change in the fortunes of both the US Dollar and the pound. After a grim 12 months, both now look ‘cheap’, and should recover although worries about Government debt funding will cause concerns. The yen now seems expensive.
Of course, there will be risks. If Western governments cause interest rates to rise too quickly growth could be choked off. Meantime, equity and bond markets offer good prospects especially for those investors facing low cash returns.
The Fry Group entrusts responsibility of the management of client investment to a number of reputable firms. These comments are taken from presentations by Investec and Rensburg Sheppards given to Fry clients in London on 21st January 2010.
Author: Graham Barnes, International Director
Investment Highlights
- US markets rise, with riskier assets rebounding from November’s flight to quality
- Citigroup and Wells Fargo raise funds to exit TARP
- Euro loses 4.5% against US dollar during December 2009
- Eurozone CPI rises to 0.9%, a 10 month high
- UK equities end December 2009 higher
- In UK the Pre-Budget Report dominates headlines including bankers tax
- Japan GDP revised down from 4.8% to 1.3% growth
- A record year for global emerging market equities, led by Brazil, Russia and India
- Greek government debt downgraded
- Government bond yields rise