Slideshow 10 Global Investment Predictions For Advisors, Investors

  • February 16 2012, 2:20pm EST
11 Images Total

10 Global Investment Predictions For Advisors, Investors<br><br>

2012 has already been an eventful year for advisors and investors. The stock market has been on a nice run (Dow up 5.6% so far) while significant mergers, acquisitions and high-profile IPOs have given Wall Street and Main Street plenty to mull through the first month and a half of the year.

And there will even more developments for advisors and investors to watch later this year considering that a dozen countries – including the U.S. – accounting for more than half the world’s GDP by purchase power parity will be holding elections that are sure to impact all facets of the world economy.

Between China’s ever-changing and increasingly critical economic outlook, the proposed tax-reform measures outlined in President Obama’s fiscal 2013 budget and the impending “IPO of the Century” from Facebook, advisors and their clients will have to pay excruciatingly close attention to all these macroeconomic and geopolitical developments to generate solid returns through the rest of 2012.

Source: Neuberger Berman’s investment strategy group.

1. Prominent Politics: Impactful in Europe, But Mostly Noise Stateside<br><br>

In the United States, the 2012 election cycle will cast a long shadow and provide great discussion fodder, but we expect that the key issues relevant to investments (like budget
and tax reform) will be on hold until after Nov. 6.

In comparison, politics and intra-governmental pacts in Europe should help temper the sovereign debt crisis and influence investment returns in both the fixed-income and equity markets.

Content Continues Below

2. Obama Wins Second Term<br><br>

Although the Federal Reserve projects an 8.6% unemployment rate at the end of 2012 (unchanged from today’s rate), we believe Barack Obama will edge out the Republican nominee to secure a second term as president. History is not on Obama’s side—in the past 13 elections, no president has been re-elected with an approval rating below 48% (Obama is currently at 43%) and unemployment above 7.4%.

However, the GOP will have a difficult time unifying behind a candidate while President Obama will be able to point to enough successes (e.g., nine straight quarters of economic growth, 22 consecutive months of private sector job gains, the death of Osama bin Laden, Libya) to win re-election.

3. U.S. Economy Avoids Recession<br><br>

Fears of a “double dip” recession have periodically emerged during the past two years amid slowing growth and spiking headline risk. We do not have strong hopes for the economy, but we believe growth in the range of 1.5%–2% will be enough to keep the United States out of recession.

However, we anticipate a steadier year of growth as opposed to the sporadic GDP prints witnessed in 2010 (1Q: +0.4%, 2Q: +1.3%, 3Q: +1.8%), thanks in part to continued improvement in the labor and housing sectors.

4. European Sovereign Debt Crisis Reaches Tipping Point<br><br>

March marks the date by which European Union leaders plan to adopt a new fiscal pact that will allow for greater coordination among individual countries’ economic policies. A great deal of progress still needs to be made toward fiscal integration, but we believe Germany and France, along with policymakers at the European Central Bank, have the power and the will to keep the euro bloc intact.

Content Continues Below

5. China Experiences a ‘Soft Landing’<br><br>

On Nov. 30, the People’s Bank of China cut its Reserve Requirement Ratio by 50 basis points. This is an important shift by Chinese policymakers and a strong signal that they will defend growth in the country, even as Europe’s debt crisis worsens the outlook for global trade—in October, the growth rate of Chinese exports hit a two-year low and inflation cooled to a six-month low. We believe this policy move, and those that follow, will allow China to avoid the much-feared “hard landing.”

6. Broadening Global Monetary Easing Cycle<br><br>

We anticipate a stronger, widespread easing cycle in 2012 to counter-balance the slowing macroeconomic backdrop. The Central Bank of Brazil has led the way with multiple cuts to its target lending rate over the last six months. Others, like the Reserve Bank of Australia and the European Central Bank, have followed suit and enacted more accommodative policy measures. We anticipate further easing from central banks in
developed and developing economies alike, which should aid global growth and support commodities and emerging market equities and debt in the year ahead.

7. Favor High-Quality Equities<br><br>

At roughly 11.5x next year’s projected earnings for the S&P 500, we continue to favor large-cap U.S. stocks with strong global footprints, diverse sources of revenue and exposure to faster-growing emerging economies. Although periods of near-term volatility should be expected, we believe an improving economy and positive (albeit slowing) earnings growth will provide a better backdrop for large-cap U.S. equities in 2012.

Content Continues Below

8. Income-Oriented Assets to Offer Attractive Return Profile<br><br>

With many areas of fixed income offering little in the way of yield and the Federal Reserve committed to keeping interest rates low well into 2013 (if not 2014), investors will likely continue to scour the marketplace in search of yield. We hold a favorable view on Master Limited Partnerships and high-yield fixed income, two asset classes that offer upside potential should conditions improve dramatically, but also provide an attractive source of income—yielding roughly 6% and 8.5%, respectively—in the meantime.

9. Geopolitical Tensions to Remain Elevated<br><br>

While the United States has officially ceased operations in Iraq and the “Arab Spring” has quieted down, global tensions continue to run high. The death of Kim Jong Il in North Korea, claims of election fraud in Russia and ongoing conflicts with Iran only complicate the current state of affairs. As long as these situations stay contained (something difficult to predict), we believe investors will focus their attention on the European sovereign debt crisis and China’s growth outlook.

10. Sector Rotation Continues to be Pivotal<br><br>

In an environment of heightened volatility and elevated correlations, picking the right sectors has never been so crucial. We continue to believe a balanced approach is ideal in
a trading-range, macro-driven market and think the energy, information technology, consumer staples and health care sectors offer a good hedge to the aforementioned risks. Their exposure to faster-growing markets and strong underlying demographics should help these sectors offer an attractive return profile for the year ahead.