Short-term sentiment has driven markets at the expense of long-term investment thinking during a markedly volatile 2011, says HSBC Global Asset Management. But this has created what it believes to be a potentially attractive set of investment opportunities for 2012 for those with a longer-term perspective.
In its global outlook for 2012, HSBC Global Asset Management argues that frequent rotations in sentiment in markets reflect the fact that officials have been applying a ‘band-aid’ approach to addressing fundamental problems – acting only when faced with severe market pressure, and only then delivering just enough to stem the tide in the short run. Investors are therefore presently focused on whether European policymakers will be able to deliver a comprehensive long-term solution to deal with the Eurozone crisis.
Given the risks to the outlook, many investors have flocked to ‘safe havens’ this year, forcing the gold price to record highs and government bond yields to the lowest levels for a generation. This puts some government bonds in a position where returns may be negative when inflation is taken into account, the report notes. On this basis its clear long-term view is that equities offer the best value in 2012 even though short-term performance is likely to remain volatile. Many companies are in solid financial shape, having applied their own austerity measures. Balance sheet strength in turn supports the outlook for on-going growth in dividends paid out to investors.
Christian Deseglise, Head of Wholesale-Americas, HSBC Global Asset Management, said: “Economic growth is likely to remain under pressure in 2012. Although many European companies have robust finances, a lack of confidence has simply deterred them from investing. However, we believe that this ignores two key positive factors which point to a brighter long-term future for investors: firstly, many firms based in the Western world are increasingly benefiting from profits in emerging markets and, secondly, while the macro outlook for developed markets may continue to be a drag, emerging market equities look set to benefit from a much more supportive economic environment in the region.”
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