By Richard Dunbar
Last year was, to put it mildly, been a challenging one for holders of ‘risk’ assets. All of the main equity markets struggled, while investors in anything related to commodities or China are nursing particularly heavy losses.
Recent months seem to have brought a relentlessly depressing flow of news from a variety of sources – Greece, China, rising interest rates, emerging markets, commodity producers. The list goes on.
Overall, we seem to be in a gloomy environment. But if you look hard enough, you can find some chinks of light. So what pieces of news flow might encourage investors to see the glass as half full, rather than half empty?
Here’s some reasons to be cheerful (albeit not as skilfully arranged as Ian Dury’s lyrics.)
- The consensus view is that the US economy is in the midst of a sustained recovery. A strong US economy acts as a rising tide that will lift many boats – as the largest and most important economy in the world, continued US recovery will help many others.
- Much of the newsflow on the collapse in commodity prices has focused on the problems of the producers. What is often overlooked is that these falls are good news for consumers of these cheaper commodities whether they be companies or consumers.
- Mergers and acquisition activity is rampant this year. Certainly in the brewing sector, executives and non-executives at Budweiser Towers, who have been contemplating one of the biggest deals in corporate history, seem pretty sanguine on the outlook for China, emerging markets and US interest rates.
- The downturn (or more accurately crisis) in some areas of the commodity-producing world may result in swifter and firmer action by mining and oil executives than some investors currently expect. While mine closures and production reductions don’t happen overnight, investor expectations can change quickly. A perception of a floor having been reached in commodity prices would provide considerable respite to both miners and the countries that accommodate them.
- The corporate sector remains in reasonable financial health. The global economy is still growing. For good companies, there are still opportunities for sales, profits and healthy prospects for dividends.
- The President of the European Central Bank, Mario Draghi, reiterates that he will “do what it takes” to engineer eurozone recovery. I suspect that his counterparts in the UK, the US and Japan would pull their monetary levers a little harder if required.
- Money is cheaper than ever (for those who can borrow).
- Banks have three times the capital that they did seven years ago, and are more willing to lend than they have been.
We could go on. Indeed, it’s entirely possible to construct a broadly positive investment narrative – one that highlights: Japan’s continued monetary stimulus, allied to a credible restructuring story; America as the continued source of technological innovation, with a mobile workforce, great demographics and cheap energy; a stronger Europe with recovery led by Italy, Spain and Ireland.
All these are reasonable suggestions as to the sort of things that might enthuse investors with a more positive mindset. There is undoubtedly much for investors to mull over – both positive and negative – as we assess the investment landscape for the coming year.
We’ll see what comes. But in the meantime, some final reasons to be cheerful from the
Bard of Upminster…
Summer, Buddy Holly, the working folly,
Good golly, Miss Molly and boats
Hammersmith Palais, the Bolshoi Ballet,
Jump back in the alley and nanny goats
Ian Dury
Richard Dunbar is senior investment strategist, Investment Solutions, at Aberdeen Asset Management
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