The year ahead will be a difficult one for global equity investors with the prospects for capital appreciation in most developed equity markets expected to be low, and the need to focus on the income-generating aspects of equities has never been greater, says Fidelity Worldwide Investment.
While emerging markets will not be immune from eurozone-inspired volatility, their attractions will become more conspicuous as the developed world’s problems are laid bare during the final, volatile phase of the sovereign debt crisis, says Dominic Rossi, Fidelity’s Global Chief Investment Officer of Equities.
Economic weakness and financial contagion in Europe will inevitably impact global growth. However, Fidelity does not see a slowdown in emerging markets as a big concern because these markets face inflationary pressures to which slower growth is a partial solution. This allows monetary policy in emerging markets to become more accommodative.
While the prospect of capital appreciation is very low in developed equity markets, Mr Rossi believes opportunities exist in income and in emerging markets.
“Within equities, investors should focus on high-quality, defensive companies with stable and reliable earnings streams, which pay high and sustainable dividends. The dividend income offers a measure of protection to investors against further market volatility. These companies are typically large, robust household names, which may well prove to be a relatively safe place for investors to park some of their cash, when consideration is given to the mounting stresses in the banking system,” says Mr Rossi.
He adds that the contrast between emerging and developed markets will become even more conspicuous in 2012. Investors should be aware of buying opportunities in emerging markets that allow them to increase exposure at attractive prices.
“We believe that emerging markets will ultimately deliver better economic and stock market performance in 2012 than their overly indebted developed counterparts. The long-term case for emerging markets is intact and the fact we are in a ‘two-speed world’ in economic growth terms will only become more obvious,” says Mr Rossi.
“In episodes of heightened volatility, emerging markets will not offer near-term respite as equity correlations converge, but investors should begin to reward their superior economic fundamentals and their better ability to recover from the slowdown in global growth over the course of 2012. The headwinds in emerging markets are cyclical in nature rather than structural, so the case for investment is robust on a medium- to long-term view.”
This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity Worldwide Investment. This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information. You also should consider the Product Disclosure Statements (“PDS”) for respective Fidelity products before making a decision whether to acquire or hold the product. The relevant PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading from our website at www.fidelity.com.au. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Details about Fidelity Australia’s provision of financial services to retail clients are set out in our Financial Services Guide, a copy of which can be downloaded from our website at www.fidelity.com.au. © 2012 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity Worldwide Investment and the Fidelity Worldwide Investment logo and F symbol are trademarks of FIL Limited.
