What is the outlook for global versus emerging markets?
Amit Lodha, Portfolio Manager of the Fidelity Global Equities Fund – “I expect global economic growth to remain muted in 2012, with a continued and marked divergence between developed world and emerging market growth. The sovereign debt issues in the eurozone are far from resolved and the political intervention and consensus needed to stem the crisis will take time to materialise.
“Meanwhile, I expect the European economy to enter into recession on the back of constrained bank lending and austerity measures. The policy response from the European Central Bank (ECB) will dictate the length and depth of the recession, and its socio-economic implications.
“My outlook for the US is more positive. Housing starts have begun to rise from an all-time low as ultra-low interest rates are starting to incentivise buying rather than renting, and the backlog of foreclosed properties is starting to clear. Meanwhile, emerging markets continue to offer significant long-term growth potential. India, Indonesia and Thailand should benefit from inflation peaking in 2012. While a planned leadership change in China should be positive as the current government has undertaken sufficient policy tightening to create leeway for the new policymakers to settle-in.
“On the corporate front, balance sheets the world over are in excellent shape. This could support capital expenditure and merger and acquisition activity. This will benefit sectors such as technology, late cycle industrials and investment banks.
“During this low growth environment, my focus is on quality franchises with strong balance sheets, which do not rely on banks for funding. I look for companies that own assets where supply and demand is tight, sell products that all of us need on a daily basis, or are doing something truly innovative, which gives them pricing power.”
Nick Price, Portfolio Manager Emerging Markets – “Within the region of Emerging Europe, Middle East and Africa (EMEA), we are blessed with companies that can grow regardless of the economic landscape.
“Without a doubt, the outlook for developed economies remains poor and the pains of the financial crisis in the eurozone are likely to be felt for some time. Consequently, we expect a degree of stock market volatility in our markets in the year ahead, but believe the long-term case for investing in the region remains as strong as ever.
“We are currently avoiding most Central European and Middle Eastern stocks as it will probably take some time before their overarching macro situations are resolved. Instead, we are buying into those businesses participating in the unappreciated African consumer and those miners involved in gold and silver production, as they should continue to do well.
“Global economic growth is expected to moderate in the new year as domestic activity in many countries eases and Western export markets weaken. However, emerging market valuations are attractive, especially in places like China and Russia. And while global markets may remain volatile in the near term, the growth potential for equities in the developing world significantly outweigh those offered by cash, debt and stocks in the more advanced economies.
“Despite the negative headwinds, we continue to find several interesting opportunities ranging from Asian smartphone component production to Russian oil and gas supply, to Nigerian beer consumption – all stories that have yet to be fully appreciated by the market. Therefore, we are positive over the long-term outlook, but remain fairly cautiously positioned until we see some sort of resolution to the current European crisis.”
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