2013: Investec sets out main investment themes

Prospects for global growth among emerging and developed economies in 2013 are likely to continue diverging, say Philip Saunders (pictured) and Max King of Investec Asset Management’s multi-asset team.

“Over the last year, forecasts for global growth in 2013 have been stable at a little over 3% on a purchasing power basis, and a little under 2.5% on actual currencies. This is similar to the probable out-turn for 2012,” they say in a note setting out their top global investment themes for 2013.

“However, divergence is likely to increase. Overall, growth in emerging economies is likely to remain strong and in developed markets weak. Despite fiscal retrenchment in the US, we expect growth of 2-2.5%. The UK is held back by declining output from the North Sea, over-dependence on Europe for exports and a secular decline in financial services, but should still see growth not much lower than the US.

“In Europe, the non-euro-zone countries should see reasonable growth, Northern Europe will struggle, but the economies of peripheral Europe will continue to spiral downwards. Slow economic growth in developed markets will not necessarily prevent solid increases in corporate revenues and profits.”

In stock selection, Saunders and King suggest being selective with mega-caps, as “market indices around the world are dominated by companies that have seen better days, and often face serious strategic challenges.” They add that “small, mid and the smaller large-cap equities will outperform. We prefer quality growth stocks, especially in the cyclical sectors, well-judged recovery stocks and small and mid-cap stocks around the world.”

Stock-picking has become key to successful investment in resource equities, whose share price performances have varied enormously, says the note. “The best companies have raised output, kept costs low, secured new resources on advantageous terms, avoided extravagant acquisitions or projects, kept debt comfortably affordable and returned cash to investors via dividends and buy-backs. Provided commodity prices do not fall sharply, companies can continue to prosper.”

Emerging market equities are starting to perform better after nearly two years of underperformance. They look undervalued relative to global equities on a price-to-earnings ratio discount of 14% with similar earnings growth. Emerging market debt should continue to be a bright spot in the global bond market, offering falling yields and appreciating currencies.


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