Global financial leaders offer optimistic outlook for markets
PortfolioConstruction Forum Markets Summit 2011 provides investors with valuable insight from the experts
Top financial services experts provided investors with an optimistic view of the current financial climate at the PortfolioConstruction Forum Markets Summit 2011 which took place in Sydney yesterday.
Having reflected on the current economic position of the world, experts from around the globe provided the high profile attendees with their unique insight into what is – and what is not – an investment bubble, and what that means for constructing portfolios.
Joe Bracken, Head of Macro Strategies, BT Investment Management
“Classic mean-variance optimisation may not protect you during bubbles since it tends to put you into assets with higher expected returns – typically the inflating one! Adding alternatives to your portfolio should help with performance stability. Overweight equities and alternatives and underweight bonds seems to be a sensible starting point.”
Bob Baur, MD & Chief Economist, Principal Global Investors
“The US and world economies have embarked on an economic expansion that has the potential to be better and last longer than the consensus expects. The biggest risk is inflation, now in emerging markets and within a couple of years in developed countries. Portfolios should be adjusted to account for the new environment.”
Steve Keen, Associate Professor, University of Western Sydney
“The dominant economic force is OECD nations deleveraging from excessive private debt, and Australia avoided as serious a downturn as the rest of the OECD by delaying the deleveraging process. Renewed deleveraging now that the house price bubble is ending will counter the stimulus from China.
“Our house price bubble dwarfs that of the USA, and Australian households are now more debt-encumbered with much higher interest rates. Government policy helped light the fuse and Ponzi lending by the financial sector provided the fuel. Prices will deflate as the rate of growth of mortgage debt slows, with negative impacts on aggregate demand and employment.”
Kumar Palghat, Managing Director, Kapstream Capital
“The US economy is turning the corner – the housing back log will be cleared and employment data is improving. The FED will continue to maintain easy monetary policy. Risk assets should continue to do well (equities, commodities, hedge funds, High Yield, etc) but bond markets are starting to sell off as safety of bonds is no longer required. Solutions for European debt problems are in the works, and the US recovery continues to be very bullish for Asia which already has overheating economies.”
Anthony Kirkham, Head of Investment Management, Western Asset Management
“Investors need to be aware that there is a difference with bonds – it is important that they do not confuse Aussie bonds with those of other Governments. There is opportunity in Australian bonds and corporate bonds.”
Chris Joye, Managing Director, Rismark International
“It is absurd to suggest that it is likely Australian house prices will fall by 40%, or that house price declines will accelerate. While the next year or so will be relatively weak, Australia’s housing market will yield investors solid through-the-cycle total returns, as it has done over the last 30 years.”
Jacob Mitchell, Portfolio Manager, Platinum Asset Management
“There is real inflation risk not being addressed by governments in emerging markets in part. This needs to be factored into our investment planning.”
Sean Fenton, Portfolio Manager, Tribeca Investment Partners
“The outlook for the Australian equity market is positive with all of the key drivers remaining supportive. Valuations are attractive, liquidity is abundant and economic growth around the world is either stable or improving. The growth recovery leads us to generally favour cyclicals, but mainly those with global exposure. The tightening moves in China do raise the risk of a near term correction in commodities so we remain neutral on resources. The commodity boom is a boost for the Australian economy, but comes with higher rates and acts as a brake on a highly geared consumer. We tend to favour mining services and financials for domestic exposure.”
Ric Deverell, Director – Commodities, Credit Suisse
“We are currently seeing major structural change as a result of, for example, another 3billion people entering the global economy in the last 10 or so years and consequent demand. This is going to last for multi decades until supply ultimately meets demand.”
The Summit was a platform for many debates and attendees were witness to diverse presentations throughout the day. However, in summing up, Tim Farrelly, Principal, farrelly’s noted a big shift from previous expectations that emerging markets would lead recovery. The discussion instead outlined surprise improvements in developed markets with potential risks in the emerging markets.
The overall outlook throughout the Summit was one of cautious optimism. The global financial leaders expected positive economic conditions in the three to five year outlook, with expected bumps further down the line.
