NEW YORK and LONDON, Dec. 13, 2012 /PRNewswire/ -- Markets in 2013 are likely to be heavily affected by government policies and politics, according to the Global Market Outlook from BNY Mellon Investment Management. Policy makers will be faced with the challenge of maintaining stability, while attempting to stimulate economic recovery, the report said.
The outlook is the annual summary of insights from BNY Mellon's investment boutiques, focused on the important investment trends expected in the coming year.
Among the key factors that could determine market direction is whether European policy makers can resist domestic pressures and develop coordinated actions to tackle the region's main challenges, said Ivo Batista, portfolio manager from the BNY Mellon Investment Strategy & Solutions Group (ISSG), which participated in the report. He added, "Also of high importance is whether the divided U.S. government can avoid the fiscal cliff and take actions that protect businesses and consumers from a wave of tax rises and government spending cuts."
If the eurozone and the U.S. can surmount these problems, Batista said that investors are likely to take on more risk and send equities higher and safe haven bonds could suffer. However, ISSG warned that failure to address these issues could lead to a spreading of the eurozone crisis and possibly send the U.S. into recession.Most likely, though, ISSG said uncertainty will remain high in developed markets, leading to slow growth. This could have a potentially positive impact on emerging markets equities, real estate, corporate and emerging markets debt and absolute return strategies, said Batista. Another concern about the impact of policy was voiced by Newton, one of the BNY Mellon investment boutiques participating in the Global Market Outlook. "When policy is deliberately designed to distort markets, it may be more challenging to identify attractive valuations," said James Harries, investment manager, global funds, Newton. "Therefore, we believe it is correct to remain cautiously positioned." In this environment, Newton believes investors favor equity investments in businesses with high-quality cash flows and strong dividends.