The second uncertainty stems from China, where the bank warns that “concerns over increasing debt levels and the easy credit policy might translate into more depreciation pressure on the RMB at some point, which could revive capital outflows.”
At an even broader level, however, a case can be made that not only that the twists and turns in the road aren’t quite as tight as they seem but that a straight line can be driven through them.
Neil Veitch, manager of the SVM UK Opportunities Fund is of this view, pointing out that market participants often misjudge the likelihood of a probable outcome based on recent examples that spring readily to mind.
This so-called ‘availability heuristic’ has meant that many investors have consistently overestimated the likelihood of another crisis.
“Despite a volatile start to the year equity markets have slowly been regaining their poise. For us little has changed, we expect the global economy to muddle through. A capitalist economic system underpinned by economic self-interest, with appropriate checks and balances, is fairly resilient. Outside of China and some parts of the developing world there are few significant imbalances. In the US many of the traditional signs of cyclical excess are absent. Europe is slowing, but the ECB remains poised to act should growth disappoint,” he said.
And, while he admits that the world has significant challenges, he says, “There is little evidence they will develop into a systemic problem.”
Perhaps it is the post-holiday glow talking, or the talk of spring after a hard winter, but I can’t help but feel that he may be onto something.
