Iâm talking, of course, about the New Year. December is upon us and predictions for 2011 are tumbling into my inbox almost as fast as the snow is falling outside my window.
Dexia Asset Management believes 2011 will see the rebirth of equities thanks to sound corporate health and unorthodox measures from central banks – though markets will remain volatile, so market timing and stock picking will be crucial. The firm also predicts an end to the current focus on the discrepancy between developed and emerging markets.
“The rationale of the growth style will not go away in 2011 and can be played by various means: notably through innovative companies in Western Europe, by globally diversified blue chips and by emerging markets,” says Frédéric Buzaré, global head of fundamental equity management at Dexia AM.
Amongst Dexia AM’s favourite innovative Western European companies are Givaudan, a Swiss perfume maker, UBM, a global business media company, and Fresenius, a global health care group specialising in products and services for kidney dialysis – a growth market, it seems.
Schroders is also optimistic about corporate health. And, like Dexia AM, it sees the discrepancy between developed and emerging markets becoming less marked in 2011 as “the medicine for the weak developed world turns potentially into a mild poison for the emerging market world via appreciating currencies and inflation”. This will create a ‘bipolar’ (having two poles, one assumes, not manic depressive) new normal, which, again, is seen to mitigate in favour of stock picking.
Finally, there is the vexed question of global currencies. Will the US go to ‘war’ using its currency as a weapon? On balance, Schroders believes not.
“It is hard to see who is truly capable of engaging in ‘war’,” says Virginie Maisonneuve, head of global and international equities at Schroders. “Japan has little room for manoeuvre given its lack of fiscal flexibility and close-to-zero interest rates, while Europe may not have the choice of using quantitative easing to weaken its currency either.”
Ah yes, the European currency. Will the euro survive to fight another day?
Schroders CIO Alan Brown points out that currency unions are essentially a political project and that as long as the political will remains so will the currency. He also reminds us how quickly that political will can evaporate – the Czech/Slovak currency union collapsed in just 38 days in 1993 – and points out that the adjustments being asked of Greece are “positively Herculean”.
Is the political will there then? We’ll have to wait and see.
Fiona Rintoul, editorial director©2010 funds europe