Researcher OBSR's latest Global Investment Strategy document suggests that most investment houses are still fairly up-beat about the global economy despite a month of political upheaval, oil price rises and natural disasters.
Researcher OBSR’s latest Global Investment Strategy document suggests that most investment houses are still fairly up-beat about the global economy despite a month of political upheaval, oil price rises and natural disasters.
“In the aftermath of the Japanese earthquake and tsunami and near $120/barrel oil (Brent) the overriding view from most of the main investment houses can be summarised as – these shocks are only likely to have a modest impact and prospects for world growth in 2011 and 2012 remain propitious,” according to Peter Toogood, director of Investment Servcies at OBSR.
However, the Strategy document also goes on to state that “given high levels of uncertainty and some more sizeable declines at the individual region/country level, some further slippage in global estimates in the months ahead would not surprise.”
OBSR goes on to give its own views on asset allocation, including equities, bonds, property, commodities and currency.
“The global economy is moving towards mid-cycle and we remain fairly positive on equity markets over the rest of the year. As ever, numerous problems will be encountered but, if the global and US economies transition to sustainable expansion, as nearly all forecasters now believe, this will be a major step forward.”
“While there is little to choose between the main markets, with expected returns from the geographic areas fairly similar, the US will likely continue to lead the way. After the recent setback Asia/EM is upgraded to neutral on a tactical view. Investors should favour good value growth stocks, high yielders with strong balance sheets and companies with exposure to growth markets. From today’s levels, gains over the year should outpace those from most other asset classes but an ability to withstand volatility remains essential, as does hedging tail risk.”
“While negative on government bonds the rise in yields will be uneven and, intermittent rallies can be expected as the Fed is keen to keep yields at lower levels and has the ammunition to do so for a while longer.”
“Even so, if the US economy develops as the consensus expects, ten-year yields are likely to eventually head into a 3¾% – 4¼% range during H2 while there is also the added uncertainty created by the ending of QE2 in June. Relatively, corporate bonds are better value and should outperform governments but they are a source of higher income rather than capital gain. Riskier credits in the UK offer the potential for higher returns, with some further narrowing in spreads expected, but those in the US now look fairly fully valued.””After such a strong yield impact-led recovery in capital values the pace of advance in the UK property market has slowed to a virtual standstill.”
“The weight of money chasing high quality properties resulted in prime capital values rising by 25% yoy even as All Property rentals continued to fall. With banks now becoming keener to supply the market with portfolios of properties from their involuntarily built stockpiles and lower levels of investor interest at current yield levels, this should inhibit further capital gains. Selectivity is important and Central London, especially offices and retail, remains the favoured area.”
“Predicting commodity returns is always a difficult call given the very broad spread, high volatility and problems associated with rolling over futures contracts on returns. As long as the global economic background develops as anticipated, however, the favoured commodities, such as copper and oil and those where there are clear long-term demand/supply imbalances, should continue to prosper.”
“Both oil and agricultural commodities could rise further near term, given developments in MENA but, with OPEC and the IEA standing by to increase supply if necessary, Brent is vulnerable to a pullback should contagion fears ease. Positive sentiment towards agricultural commodities should begin to fade and a number of forecasters expect prices to fall in H2. Gold continues to be highly volatile but remains a trade not a long-term investment.””As ever currencies present all sorts of conundrums for investors. The euro was a prime example last year with its huge volatility and extreme short term moves not necessarily driven by fundamentals.”
“Trying to call short-term trends is akin to trading but, as the economic cycle matures, interest rate differentials play an increasingly important role in currency trends and the euro is benefitting from a turn in rate expectations and reduced sovereign and financials credit risk premia. On a real effective exchange rate basis the yen remains overvalued while sterling is undervalued although recent UK economic data could inhibit recovery. The EM/commodity currencies remain preferred on a long-term view.”