On-going issues in the eurozone and the looming US fiscal cliff will create an uncertain environment for investors until the beginning of 2013, according to Baring Asset Management.
Outside of the US, Barings believes the outlook is still bleak in developed markets. In Europe, the French economy is showing significant signs of strain.
An outright recession looks likely next year which, taken with the structurally high unemployment rate, may cause severe headaches for a government committed to improving its competitive position and also reducing the budget deficit. Italy is also floundering and risks following a similar path to Spain over the next 12 months.
Valensise says: “Across Europe and indeed across the globe, the outlook is being increasingly dominated by the political environment. Markets may not be the next catalyst for the crisis, but the reaction of electorates might well be.”
The European Central Bank’s bond buying programme has at least removed the immediate threat of a bond buyers strike tipping a government into a crisis, but the underlying economic trends of austerity combined with a lack of competitiveness are remorseless.”
Barings also believes there are some tentative signs that growth in China is beginning to stabilise. Valensise concludes: “Unlike 2012, when the outlook for the Chinese economy was one of the major uncertainties surrounding markets, there seems a clearer picture for 2013, though growth may still be below what we have become accustomed to.
The Chinese economy has been disappointing but there are now tentative signs that it has achieved a softer than anticipated landing and may yet see growth accelerate towards what has been perceived to be the trend growth rate in 2013.
“The new party leadership may direct more positive sentiment toward the market in the months ahead as they announce further initiatives. The administration does face challenges, however, as it seeks to rebalance the economy away from exports and investment, towards more domestically-focused production and consumption.
“For now, news that the economic growth rate has stopped slowing could do much to boost sentiment towards those areas that have performed poorly, in our opinion. This could be supportive not just for China, but other emerging markets too.”