What clients really need is to hear a friendly, calm voice from a confident individual in charge of their investments. There are bound to be those who will ask to totally divest their assets and run to cash as they see quick-fire market peaks and troughs in a short space of time and automatically rewind the clock three years to the chaos of 2008.
Thankfully, their worries are unfounded and despite the fact that nothing has actually been resolved, there is a degree of certainty returning, if it ever went away in fact.
Emerging markets
The long-term growth story of India, China and the rest of the emerging world east of the war zone that is Afghanistan and south of Russia continues. Market volatility in the US and the UK and the rotation of European countries as the focus of the region’s debt problem have had very little direct impact away from the Western developed nations.
The events of 2008 affected them largely because of their interaction with countries that could not afford to import from emerging markets to the same scale they had previously, nor could they export as much as previously because they had to scale back on existing inventories and staffing levels alongside future production levels.
Weak economies
Weak economies do not necessarily mean weak corporate investment opportunities. Even in the hardest hit US, European (PIIGS and otherwise) and UK markets there have remained companies with strong balance sheets, good management – many of who have successfully steered their firm out of 2008 – and earnings based on the continuing emergence of China et al.
According to Bill O’Neill, chief investment officer of Merrill Lynch Wealth Management, EMEA:
“The broad view of strategists is that the equity and bond markets have now discounted a recession as the most probable outcome, as dividend yields are again exceeding bond yields in several markets.”
Earnings will grow as will GDP pretty much across the board – both sets of figures will be positive but only just; this is in stark contrast to the immediate aftermath of 2008 when most forecast figures were negative and a very dark red.
Asset allocation
Clients are being encouraged more than ever to maintain their long-term outlook and not make any drastic short-term asset allocation changes. And this time round they seem to be far more sanguine, encouraged to “master inactivity”, as Sebastian Lyon, Troy Asset Management’s chief executive puts it.
Investors need to keep an eye on their asset allocation as it is easy to let them “drift meaningfully from target and strategic” plans, as O’Neill explains it.
We may be three years into a recovery, but it is only now starting to take shape with Europe home to most of the question marks. Governments across the developed world are working on their austerity plans, with the US Super Committee – in charge of reducing the world’s biggest budget deficit – only just in place.
It may take another three years before we see any kind of growth spurt, but at least we look set to get there in one – admittedly slightly scarred round the edges – piece.
