Investment themes
Slower growth
A theme we are watching evolve is slower overall global growth, particularly in the developed world. This is more penalising for emerging economies that have relied on the excess growth in the developed markets to support, and lead, domestic industrialisation.
Without the external demand there is more urgency and vulnerability around developing the middle classes, and greater domestic demand in emerging economies, particularly at a time of weaker commodity prices. The progress being made is unequal and uneven, with more discrimination needed within emerging markets.
Later-stage demographics
It is generally recognised that Japan has been at the forefront of global demographic change, due to its ageing society and a vastly increasing dependency ratio. However, it should be acknowledged that many of the main developed economies are not far behind in terms of ageing and lack of increasing working population, with lower birth rates and/or a lack of successful immigration policies to blame.
We are analysing not only how fast different major economies are tracking through this development but, importantly, how this may affect and impact consumer consumption, savings and asset classes.
Post financial crisis
We are very focused on sustainable trends in economic growth rates but we are also closely watching all consumer behaviours – household, industrial and government – in the aftermath of the financial crisis.
Many economic participants have to rebuild their balance sheets, but the potential emotional scarring from the financial crisis may mean lower confidence and thus lower consumption and investment commitments. This results in lower growth rates and greater vulnerability to downturns, which then has implications for markets and economies as mindsets have to be adjusted.
Investment relationships
The investment community is getting to grips with a new environment of lower growth and, at least in the short to medium term, a lower inflationary environment caused by excess capacity and lower confidence.
In this regime, what premia should be afforded to growth or income? What is the right measure to be looking at – is itP/E? Yield? We have seen both growth and income premia marked up but market volatility overall seems to be of a higher order. Does this make markets appropriate for traders or is volatility ensuring that only longer-term investors, with interim steel, capture the rewards?
