Divergence between Weak & Strong
In yesterday’s blog, I mentioned a fractured world or globe. What does it all mean? It means we have to tread carefully this year.
According to Dr Andreas Hofert, Global Head of Wealth Management Research, UBS, in his talk last night at the Ritz-Carlton, he summed up that no investment should be considered ‘safe’ as inflation and currency weakness for indebted nations loom.
Investors have to reorient their perception of ‘safe’ fixed income investments. When the facts change, investment strategies should also change. As traders, this is what we believe and do too: when the market changes direction, we need to reorient our strategies. We must use intuition not ‘into wishing‘ , as most novice traders tend to do.
What else should we do? This is the question posed.
2010 was a year of reasonable returns for most investors but the investment environment in 2011 will be shaped by difficult political choices, a choice of three options or ‘trilemmas’ where only two can have favourable outcomes at the same time and where one will have to give.
If political uncertainties exist, some economic certainties remain, as the gap between weaker and stronger economies and their divergent growth paths becomes more evident in 2011.
The US, long the engine of world economic growth, is in the camp of the weak economies, while China and its South-east Asian neighbours are in the camp of the strong economies, including commodity exporters, Canada, Australia and Brazil. UK, France and the Mediterranean countries are struggling while Germany, Switzerland, the Benelux countries and Scandinavia are pulling ahead.
Following from this, we see the selection of fixed income and currency investments preferred in stronger economies whereas equity exposure continues to be directed to the world’s stronger growth regions.
Investments into so-called assets like equities, commodities and real estate could be looked into. The European debt crises is not over yet and financial markets are dividing debt in the region into safe and unsafe. European peripherals like Portugal and Greece have small economies and therefore have limited impact on the global economy. But the big economies like the US, France, Japan and the UK are worrying. At the other end of the scale, Switzerland, Sweden, Germany and several emerging economies look well prepared for the challenge ahead for 2011.
Stay tuned for more soon.
IDKIT aka Ana