The combination of improving macroeconomic data, strong company earnings and accommodative central bank policies have contributed to an upward trend in equity markets in recent months. But the global economy, especially western developed markets, still face a number of headwinds including the need for austerity, multi-year de-leveraging and high oil prices.
Growth differentials between the developed and emerging markets remain wide and this is expected to remain the case. Over the most recent quarter, global growth for 2012 has been revised slightly lower to 2.6%, compared to 2.7% last December. Growth in China and the eurozone continue to be revised down while in the US growth has been revised upwards to 2.3%, from 2.1 % last December.
As a result, we prefer equities to bonds, with dividend yields likely to remain attractive relative to bond yields. We believe equity portfolios should be diversified to emerging markets on relative growth prospects and on prospective real currency appreciation against most developed world currencies.
While the ongoing challenges facing investors in 2012 will likely create volatility, they should also create opportunities. Therefore, we will continue to take modest active positions in our wealth portfolios globally to take advantage of short-term market opportunities.
We believe that the global financial markets crisis of 2008/2009 was a watershed event and that we are moving towards a new world order. In this post-crisis world, the shift in the centre of economic gravity away from industrialised countries to emerging markets has accelerated.
We expect emerging economies to continue to enjoy a positive growth differential relative to the developed world which will struggle to grow under a burden of debt. Indebtedness is generally much less onerous and demographics more supportive in emerging economies.
