Latest Financial Developments
Market overview - 1 May 2013
As an overview, the gentle positive momentum behind both the global economy and the return environment continued during the first three months of the year. We may not yet have achieved escape velocity for business activity in the US, Europe or Japan, but the gravitational pull of renewed recession has been offset by monetary policy continuing to operate at close to maximum thrust.
The 6.5% outperformance of risky over safe-haven (global equity versus global bond) assets over the last 12 months suggests that a new return environment is starting to emerge. There is evidence that not only is new money flowing into risky assets but investors are starting to reward faster growing companies, those who are both delivering good income and starting to recognise the importance of future growth in the form of capital spending.
While hardly a classic early stage bull market, the pendulum is slowly and gently swinging towards a positive return environment that towards the end of the quarter also exhibited a degree of resilience to the adverse and unforeseen shocks in Italy and Cyprus. However, the global economy is still taking time to heal, and momentum remains dependent on a considerable degree of central bank support and government intervention.
Market Overview (1st November 2012)
After a strong start to the year the return environment for risk assets has deteriorated once again and volatility has returned. This has coincided with concerns about self-sustaining momentum in the world economy, prompted by worries about the sustainability of the Euro-zone, the impact of energy costs
and the extent of the policy-induced slowdown in China.
Global economic growth moderated into the early summer, although the extent of the slowdown has been far from even. Most countries have seen weaker business surveys, compared to earlier in the year. For some, that indicated the heightened risk of recession, while for others it merely pointed to a moderately slower pace of growth. Overall, consensus forecasts for global economic growth in 2012 have been trimmed from a December reading of 2.9% to 2.6%. The bulk of the downward revisions relate to European growth prospects, but some contagion is evident. Consequently, there is a risk that there could be further downward revisions to come.
For now, however, that expectation of global growth of just 2.6% for this year is already lower than the 2.9% achieved in the recession year of 2008. That is likely to prompt calls for governments and central banks to consider further stimulus measures. Therefore, the House View has focused on sustainable yield in recent quarters, combining income from a range of corporate bond, equity and property assets. This helps to offset turbulence from the volatile economic cycle and also gives protection against policy responses which often aggravate rather than dampen the economic cycle.