According to Morgan Stanley it is.
In a recent paper giving its global economic view, Morgan Stanley’s research team cited “a policy-induced slowdown”, adding that the situation means we are now “dangerously close to recession” though this is not its base case.
Lowering forecasts
It has cut its global GDP forecasts to 3.9% growth for this year, down from 4.2%, 3.8% next, down from 4.5%. Its view of the developed market has worsened, with its research team suggesting an average growth of 1.5% for this year and next, down from 1.9% and 2.4% previously.
Its poor outlook for Europe is predicated on slower global trade growth, higher commodity prices, an overvalued euro exchange rate as well as the ongoing tensions in the outlying countries.
The emerging market forecast is also slowing, from 7.8% last year to 6.4% (previously 6.6%) this and then 6.1% (6.7%) next year.
Events in the US and Europe, it says, have eroded “business and consumer confidence and has weighed down on financial markets. A negative feedback loop between weak growth and soggy asset markets now appears to be in the making.”
It adds that it will not take much of an additional shock to push these economies into recession though it counteracts this with positives such as corporate strength, falling rates of inflation and more QE-type encouragement from the central banks.
But all this economic doom and gloom means there are opportunities to be had, certainly in the equity markets, so those investors running for the door would be well advised to think twice before any more they make any more knee-jerk reactions.
Reinvest cash
“The relative strength of a number of UK equities has given the opportunity to take some profits where valuations are catching up with events,” says Alan Borrows, fund manager of the CF Midas Balanced Income Fund.
He is another who echoes the popular view on continued corporate strength, putting money into the M&G Global Dividend Fund as a result.
Mark Slater, fund manager of the MFM Slater Growth Fund expresses this view in a slightly different way, saying: “It is very important to distinguish between share prices and business prospects.”
He avoids companies with exposure to consumer or government spending and is happy to embrace the opportunities that the current volatility throws up.
“We have always found that periods of volatility have laid the foundations for subsequent periods of strong performance,” he affirms.
The conclusion is the ongoing need to distinguish between economies and markets; don’t be afraid of volatility; take profits where you can and invest the cash wisely.
