Investec defensive as “Western financial crisis” may come

A financial crisis induced by the West may come and investors should fasten their seatbelts in the coming months as markets could be very volatile, says Michael Power, global strategist at Investec Asset Management.

Power predicts the debt problems in the US and Europe may take at least 5-10 years to be solved, or even longer. “Markets are not convinced they have a capacity to do what needs to be done.”

“They are borrowing money from their children and grandchildren without asking, not to build growth but to consume. It is very undemocratic to do,” he criticised.

As a result, the ongoing European debt problems could hit the market badly in the coming months. Therefore, the global strategist is holding defensive approach by allocating more towards fixed income, such as emerging market debt and Asian bonds. He is also bullish on some rich commodity countries and regions, such as Latin America, Canada, New Zealand, Russia, and South Africa and expecting by end-2012 commodity price will catch up.

In addition, he says China’s economic growth has significantly outperformed in past few years when it comes to nominal value on the dollar. “China is actually growing at 17% compared to 6% and 2% in the US and Europe.”

“The shift from the West to the East is going to accelerate. China will become the world’s largest economy in ten years time,” he adds.

 

This article was first published on Professional Adviser Hong Kong

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