Aberdeen to prepare for hard landing

Aberdeen Asset Management sees current global economic performance as the worst investors have had to face for 20 years.

The one fundamental difference is that it is being caused by a disinflationary slump rather than by the inflationary problems of the past.

James Clunie, head of strategy at the group, said the attacks on the World Trade Center in New York intensified what was already happening in the markets and moved the US and global markets to a hard landing as consumer confidence suffered from the shock.

Still, Clunie is positive on a strong recovery in the not too distant future, looking for a bounce back from a low base in 2002.

He said: 'People have flown from the risky end of the market, such as the Far East, but as in past crises we expect that this risk aversion will only last for two to three months as markets generally recover from a shock within six months.'

Aiding this expected recovery, he said, is the fact that global equities are now as cheap as they were in late 1998 and while they may not constitute a screaming buy, they are good value relative to bonds.

Recommending that investors start switching out of defensives and increase their positions in cyclical and growth stocks, Clunie said cyclicals are now also at 1998 valuations. Liquidity is rising sharply, which will be a positive for equity investing, with the only caveat to his bullishness on a recovery being that there still might be some short term volatility.

He added: 'Risks do remain as we do not know if what we have seen is the ultimate bear low, but we do see growth prospects improving for 2002 and recommend a steady increase in equity exposure.'

Phil Roantree, manager of Aberdeen Sterling bond fund, agreed with the outlook, noting that the current climate is more likely to benefit equities than bonds, which is placing high yield paper in a good position looking ahead.

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