2012 is set to be another volatile year for investors.
Commentators suggest a two-speed global economy with fragile
developed economies and resilient developing markets, in particular
Brazil, China and Korea. Galen Stops looks at the 2012 investment
outlooks from a selection of banks.
Go deeper with GlobalData
Chief
investment officers predict the traditional ‘safe’ assets for
investors – cash, sovereign bonds, real estate and precious metals
– can no longer guarantee wealth preservation.
However, equity markets are being
tipped to improve in 2012. Merrill Lynch Wealth Management has
recommended US and UK equities as one of their preferred
investments for the year ahead (see 2012: cautious, not catastrophic, says
Merrill Lynch).
After a disappointing 2011, many
experts expect Asian equities to recover in 2012.
While some have been more tentative
in saying to what level markets will improve, Credit Suisse’s
Asian Equity Strategy Report predicts a 10-15% upside
for Asian
equities in 2012.
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By GlobalData
US, UK and emerging markets
equities
UBS, in its latest wealth
management research, recommends avoiding eurozone equities in
favour of the US, UK and emerging markets.
The research also notes that having
equities in a portfolio can help lower overall risk by bringing in
a hedge against inflation.
In this regard, UBS prefers
defensive sectors like consumer staples, health care and telcos,
although the IT sector is also recommended.
Currency signals are not so clear.
UBS advises that, given the uncertain economic climate, it is best
for investors to wait until it becomes clearer what the future
holds.
Commodities continue to
rally
In the long term, Credit Suisse
expects industrial commodities to recoup some of the losses they
suffered in the second half of 2011. However, in the short-term,
there is a warning pricing is likely 
to be driven by macro
sentiment.
The Swiss bank predicts gold and a
number of industrial metals will do well in 2012, while oil and
grains remain vulnerable to further supply disruptions.
UBS claims, with inflation pressure
lower, central banks in emerging countries will ease monetary
policy allowing for a solid incremental demand for commodities.
Deutsche Bank PWM sees only a
moderate possible upside of gold. The bank also predicts cyclical
commodities prices may struggle, particularly if global growth
slows below 3%. If growth does slow in this manner then oil could
prove more resilient.
Big companies: a safe
bet?
Most banks agree large-cap
companies can provide opportunities in 2012.
Deutsche Bank global chief
investment officer Kevin Lecocq forecasts global economic growth is
still likely to be greater than 3%.
“[Therefore] equity in
well-governed, flexible companies plugged into this global growth
is worth investing in,” Lecocq says.
Barclays Wealth claims powerful
global brands can also be a potential weapon against inflation, as
they have monopolistic pricing power and can pass higher input
costs on to customers. Barclays says luxury goods companies are the
most obvious example.
New conditions
Given that continued volatility is
expected in the financial markets, investors and wealth managers
are being advised to adjust to these uncertain conditions.
Diversification is, unsurprisingly,
a popular theme. Barclays Wealth chief investment officer Aaron
Gurwitz advocates building and maintaining well-diversified
portfolios with enough liquidity to allow them to respond to
financial changes. UBS says it will be “crucial for investors to
construct prudent and high diversified portfolios” in 2012.
Deutsche Bank PWM says investors
need to build active risk into a portfolio, using financial
instruments that reduce downside risks, or assets that constitute
shock absorbers.
