CIO theo zemek expects global growth to slow to 2.2% next year and market to rebound
The global recession will be short and sharp, with markets recovering by the end of second quarter next year, according to Theo Zemek, chief investment officer of M&G International.
Terrorism is not new to the world and the events of 11 September are unlikely to change market forces significantly, she said.
Speaking at the Glasgow Inside Investment roadshow, sponsored jointly by M&G, Schroders, Invesco Perpetual and Aberdeen, Zemek told intermediaries that the world, post the terrorist actions, is not vastly different than it was a few weeks ago.
Looking back over the past century, Zemek, who has a Phd in history, described the 20th century as a remarkably bloody time period, probably the worst in human history.
She said: 'Volatility and uncertainty are nothing new, nor is terrorism. Instead, the risks to life and liberty in the free world, which had grown substantially over the 20th century, have diminished significantly and this trend remains intact.'
Over time, she noted, financial risk takers have been rewarded for their bravery in the markets in difficult times, pointing out that an investment in international equities invested in 1972 to today, a 29 year period, would be worth 15 times its value today. Bond investments over that same time period would be worth four to 11 times more and gold, often thought to be the bastion of markets in difficult times, would have only quadrulpled an investment.
'Gold is dead,' she added.
That said, Zemek agreed that the near term investment future looks bleak as the world moves into recession and consumer confidence appears battered.
Predicting global growth will slow to 2.2%, the lowest since 1992, and G7 growth to 1%, the lowest since the 1991 recession, Zemek said on the surface it appears as if bonds would be a safe haven at the moment.
She said: 'We need to think outside the box. The current environment will not be good for bonds. The recession is being countered by aggressive monetary easing and easy money is bad for government bonds, particularly the longer dated ones.'
The other thing to keep in mind, she said, is that dealing with the terrorist threat will require significant expenditure, which is also bad news for bonds, with estimates already at a $83bn expenditure by the US government.
Zemek said it was unlikely this capital would be raised from taxes, especially in the midst of a recession, so it would probably be funded through Treasuries and other government bond markets.
She added: 'A few years ago bond managers were concerned that a number of governments were looking to retire debt ' no longer. There will be much more supply and therefore lower prices. The one exception to the negative bond outlook is high yield. Prices are so far down that it presents good value.'
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