Welcome to the New Year. From an investing point of view is 2012 likely to look much different to 2011?  I think not, there are three possible economic scenarios for the world economies;

(a)     some recovery – I think that is doubtful,

(b)     a disaster, that would be likely to happen as a result of a disorderly breakup of the Euro resulting in a collapse of the European Banking system which in turns drags down the world economies, this could happen but the current signs are that the ECB is making some sensible moves and

(c)      what I saw named in a resent article as “more crab like activities”

My money is on the third scenario, I think that the investment scene in 2012 will be very similar to the one we have just lived through in 2011.


It seems likely that the economy in 2012 will be fairly stagnant, in the UK we still have one of the highest levels of debt within the major economies and it will take time for us to recover, growth in 2012 is likely to be between 1% – 1.5%. However, we may see a fall in inflation but this will be gradual. Finally there seems little likelihood of the Banks increasing lending in fact  mortgage lending may well fall further resulting in continued stagnation in the housing market. How then should you invest against this gloomy background?  Despite my prediction for the market it is still possible to identify companies with good balance sheets and cash flow and a strong dividend return. It is likely that earnings from companies such as these will be arising from worldwide trading activities. We are recommending that clients access these companies via UK equity income funds.


The outlook for the US appears fairly positive. The US went into recession earlier and quicker that the UK and there are now some real signs of improvement. The recently released payrolls data showed an improvement and the employment figures in December jumped by 200,000 jobs. The Americans will now be looking forward to an election in November of this year and this removes some of the current political uncertainty.


In Europe we are likely to see continued uncertainty with the continued conflict between the two sets of economies with different growth rates, productivity and work ethics. Interest rates and inflation are likely to be low in Europe with even the possibility of deflation The big question is will the Euro break up? However, against this background some Companies are still in good shape but because of the risk aversion of the investor the share prices of such companies are currently low and good value for money. The problem is how to access such companies and we would recommend entry via Global equity income funds rather than specific European funds.


The values of shares in the emerging markets have fallen in some cases more than shares in the developed countries because of the perceived risks. However, there are still very good long-term prospects for the emerging markets because of the large populations of young people with the consequent increase in consumer demand. In the short-term the prospects for China are better than India. India is suffering from very high levels of inflation resulting from high food prices, whereas in China inflation is coming down and the growth rate in the coming year is likely to be 6%/7%. So, we are still very positive about investments in Emerging Market funds for long-term investors.

January 2012