Dec 2008-Jan 2009
one of the most dramatic years ever on the financial markets draws to a
close, analysts are left with the unenviable task of dreaming up an
outlook for 2009.
It ain’t easy. As ING Investment Management
points out at the beginning of its crystal-ball gaze, “Recent
developments in global financial markets have been so dramatic that
even the rapidly deteriorating outlook for the underlying fundamentals
in the economy can hardly explain the type of scenarios that are now
being priced in by markets.”
Which is another way of saying,
really, who knows? And, indeed, the unusual conditions may help to
explain the wide divergence in views this year.
“the most severe downturn since the early 1980s” for the global economy
“as a result of a hit to confidence, a further significant tightening
of financial conditions and an additional reduction in credit
availability for households and businesses”. Against that backdrop, it
sees a limited range of opportunities in 2009: on the bond side in
high-yield bonds, investment-grade bonds and inflation-linked bonds,
and on the equities side “among high-dividend paying companies, in
strong emerging markets and in a few defensive sectors”.
Blackrock, meanwhile, vice chairman and director, Bob Doll is calling
the bottom. “At present, stock prices are above where they were when
they first hit an important bottom on October 10, and our conclusion
now as it was then is that equity markets are in a bottoming process,”
There’s still some way to go, he adds – based on
patterns observed during past recessions, between two and four months –
but “the longer-term outlook is brighter”.
If you want to
balance that cautious optimism with a bit of stomach-curdling gloom,
try someone who really calls a spade a spade: my personal favourite,
Max King, strategist and portfolio manager at Investec Asset
“So far this decade, Argentina has devalued its
currency by two thirds, defaulted on its foreign debts, manipulated its
inflation rate down by over 20% and taken action to confiscate all
private sector pension funds,” says King. “Is this a terrible warning
about how democratic governments can act when their backs are to the
Banks are being nationalised “to punish naughty bankers
rather than to fix the financial system,” he adds, and last year’s
Canadian nickname for the dollar, the Yankee peso, now applies to
sterling, but recovery looks much less imminent for the ‘sterling
However, the straight-talking King’s most telling – and
chilling – aside is to remind us of the words of former British Prime
Minister James Callaghan’s at the 1976 Labour Party conference: “We
used to think that you could spend your way out of a recession and
increase employment by cutting taxes and boosting government spending.
I tell you in all candour that this option no longer exists, and in so
far as it ever did exist, it only worked on each occasion since the war
by injecting a bigger dose of inflation into the economy, followed by a
higher level of unemployment as the next step.”
This lesson has been forgotten, says King. Ah, yes.
is the last Funds Furope newsletter of the year, so may I take this
opportunity to wish you a very merry Christmas and a happy, good New
Year – whatever new excitements 2009 may bring.
Fiona Rintoul, Editorial Director
©2008 funds europe