Asian (ex-Japan) and European equities offer the greatest potential for growth in 2002, according to...
Asian (ex-Japan) and European equities offer the greatest potential for growth in 2002, according to the investment strategy team at Axa Investment Managers, while the City of London Investment Management Group sees the best opportunities in emerging European markets.
Nigel Richardson, senior strategist at Axa, suggests Asia and Europe offer better prospects of significant growth because the cyclical nature of their economies means they will benefit disproportionately from any upswing in the US.
Richardson says: 'This region (Asia ex-Japan) is showing increasing signs of recovery, with economic activity stabilising across the region. This phenomenon has been particularly noticeable in the export and consumer sectors, such as technology, and external demand remains the driver of the economy.'
Central and Eastern European (CEE) equity markets have seen renewed investor interest as a slowdown in economic activity and falling inflation in the region's economies create favourable conditions for central banks to loosen monetary policy, says head chief economist at City of London, Michael Russell.
Russia and Poland look to be the most promising markets, he says, with the Russian economy forecast to grow by 4.5% in 2002 and Poland's by 2.0%. Russia has benefited from a ratings upgrade from Standard & Poor's recently and has embarked on a judicial reform programme that should encourage domestic investment and lending.
The outlook for Poland has also improved substantially following a change of government, says Russell. He adds: 'The country's previously vigorous growth had slumped to 0.9% under the Solidarity-based coalition that had run the country until recently. The appointment of a market- friendly finance minister by the new socialist regime and continuing talks regarding European Union entry should see the general outlook improve.'
On the world's major equity markets, Richardson and Russell have markedly different views and expectations.
Richardson sees signs of recovery in the headline figures coming out of the United States, while Russell is more cautious about the prospects for a prolonged upturn.
Richardson says: 'Although we recognise the economic environment remains exposed to risk, we think recent fiscal stimulus and the decline in energy prices have helped to lift the economy, paving the way for a gradual return to potential growth.'
Russell, on the other hand, says: 'Large-scale fiscal stimulus by the Republican administration in Washington to complement the Fed's monetary loosening has improved prospects of recovery but the pace and timing of the upturn is likely to disappoint.'
Axa is relatively positive on Japan, expecting a rise in domestic activity as well as visible signs of an export recovery to propel it towards a muted recovery in the second half of the year. City of London sees more of the same in 2002, however.
In Europe, neither company sees 2002 as a year in which the economy will roar back. Richardson feels that the downward slide will trough in the first half of the year, with sluggish growth predicted in the second half, whereas although Russell concedes this is possible, he warns another year of stagnation is just as likely.
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