Global growth should pick up slightly in 2013 on improvements in both the advanced and developing economies, says State Street Global Advisors’ global CIO Rick Lacaille.
Lacaille says the Japanese economy continues to experience deflation and return on equity among Japanese companies is well below that of other regions. Deteriorating relations with China could also negatively impact Japanese earnings in 2013. While we remain cautious on Japan we believe that investors should hold a strategic allocation.
In today's environment, the key challenge for investment managers is achieving positive absolute return. Lacaille says: "The question facing investors and their advisors should not be whether to invest actively or passively but, rather, which instruments will achieve their portfolio‘s total return target.
"Although it is often said that areas of financial markets where information is scarce and securities valuation is less well researched offer superior return potential, the evidence across all managers is less convincing and it remains a challenge to forecast manager performance.
"However, behavioural anomalies such as loss aversion and the value effect fluctuate in their intensity, and areas of the world about which investors take extreme views - such as the periphery of Europe and China - may offer potential for disciplined bargain hunters."