news & tips

Where to Invest in 2012 - Market Outlook and our views on the coming 12 months.  (by Joanne Roberts January 2012).  (the bigger the tick the more positive we are of growth in the sector)

Government Bonds
Equity markets have been volatile, meaning investors moving to safe havens and Government bonds (including index linked stocks) trading at record highs. Now is not the time to buy into Government bonds because they are expensive. Hold what you have already purchased whilst markets are volatile.

Corporate Bonds
Corporate bonds have had clear appeal to investors in this low interest rate, high volatility market, but not all of them. Government bonds and corporate bonds in troubled Eurozone states carry obvious risk but a higher return. However, corporate bonds and Government bonds in areas such as the UK, US and more stable European economies should perform well during 2012. The outlook at the moment is for interest rates to remain low, so demand will be higher for corporate bonds offering more than bank rates, especially if they are well established ‘investment grade’ companies such as pharmaceuticals and consumer staples.

For higher yielding corporate bonds that come with a better return, investors need to look at what the risk of default is before going in for the higher returns. Bank debt with exposure to the Eurozone should be viewed cautiously.

UK Equities
UK equities are likely to remain sluggish until a final outcome is found for the Eurozone. On its own, Britain can fare well and grow but we will be affected by Eurozone change and this is why markets are still nervous.

Companies likely to see growth are those with trade overseas in the US, Far East and Asia. Defensive assets are still doing well, for example healthcare and pharmaceuticals, alcohol and tobacco.

European Equities
European equities continued to fall during 2011, with the exception of the stronger countries such as Germany and France, although France has now suffered a ratings downgrade. The outlook for economic growth in Europe is weak and you will need to take a five-year view to see positive returns.

There are growth areas but these are generally from European companies trading outside the EU.

US Equities
The US markets look to be growing again, although the Federal Reserve warned that Eurozone problems would affect the US economy. The effects of quantitative easing seem to be working, unemployment is falling, retail sales are up and consumer confidence is rising.  This is a definite market to watch for 2012.

Asian Equities
Asian markets had mixed results in 2011, primarily as a result of the Western debt crisis.  Chinese equities lost favour at the end of 2011 due to inflation and slowing growth.  How Asian markets fare during 2012 will depend on policy made by Western Governments and Central banks.  EXpect some limited growth.

Japan
Since Prime Minister Noda came to office the Government seems to be moving in the right direction for change in Japan. The change could signal growth in the country’s economy over the coming years.

Japan is now in negotiations as to whether to join the Trans Pacific Partnership, a large free trade area including the US. Whilst there has been much opposition from farmers, Noda said Japan would only join the TPP if it is in the country’s financial interests.

Additionally, Japan is now looking at privatisations based on the sale of state assets.  This would raise money for the rebuilding of Tohoku and definitely improve Japan’s debt position.   We are positive for Japan thie year.

Commodities
Commodities in the news are mainly oil and gold. Oil prices are supported by Middle Eastern and North African (MENA) instability, with political parties increasing spending on social programmes to keep their populations calm.

Oil is still maintaining a price over $100 per barrel as a result of Libyan oil being off-line and OPEC’s “price matching quotas”.

Gold prices are still 13% higher on the previous year, despite lower demand from India. Gold mining share prices are down even though consistent high gold prices have added to their profitability. The general consensus is that oil and gold mining companies can still offer profits. 

We expect some growth but not the "gold rush" that we have already had and it may be time for those who have made gains to come out soon.

Africa
Keep an eye on Africa for 2012 as their economy is growing faster than any other continent outside Asia. Investment is being made into industry and services, which will lead to a more wealth and influential population.  It is interesting to note that China has been ploughing money into Africa for the past ten years. This has resulted in a growing labour market and increased wages.  We expect some growth but infrastructure will limit access to this market and restrict growth opportunities for the time being.

Global Economies to Watch
In terms of other global economies to watch for 2012 they include the US, Japan, Norway, Australia, Canada, Korea, Singapore and Brazil.