2013 will be the year of equities, says William Blair
William Blair expects 2013 to be the year to get back into equities and other riskier asset classes.
George Greig (pictured), global strategist at the US based firm, argues that monetary policies across the globe are “unusually accommodative, inducing people to seek returns from risk.”
Investors, however, have been put off risky assets by the volatility of global markets, resulting in fluctuations between risk on and risk off approaches this year.
However, Greig sees the global backdrop going into 2013 as far more positive than it has been this year.
He says: “Leading indicators are improving in the US, the housing market is getting stronger, employment is recovering. China’s leading indicators are starting to turn around and look more stable, too.”
The second part of this year has seen strong corporate performance and the market environment across the globe has “strengthened considerably”, he continues.
This state of affairs is particularly supportive of equities. Equity returns have been strong throughout the year, with good quality companies showing particular outperformance.
The MSCI Global index is up 12.26% year to date. The MSCI US Broad Market Index is up 15.45% this year, while MSCI China is up 16.57%.
Greig says: “We are getting to the end of a long down cycle, and investors need to recognise that the longer we are into the cycle of low returns the better the prospects. A secular bull market is coming closer, we just can’t predict when it will rally.”
Equities are also the “best and most versatile way” to protect an investment portfolio from various kinds of inflation, he argues.
The only worry is that wage inflation may eat into profits, but a selective investment process can avoid this problem.
Geographically, the equities with the best growth opportunities are in emerging and frontier markets. Greig refers to Asia broadly, covering China, South East Asia and North East Asia, such as Korea and Japan.
He believes that the rally of Asian equities is far from over and the picture next year will be even more positive than this year, which has been overshadowed by the focus on Europe.
In terms of sectors, Greig advocates favouring cyclical growth sectors and de-emphasising non-cyclical sectors and commodities. This view is based primarily on the shift to a more service and technology intensive market, away from commodities and heavy industry.
Financials, which have had a bad run this year, may stage a comeback next year. As banking supervision improves and Europe’s Central Bank encourages European banks to bring their affairs in order, the industry may well recover in 2013.