Investors will see long-term opportunities in credit, property and equities in 2008 and 2009, despite below-trend growth as the market recovers from credit and inflation shocks, according to Standard Life Investments (SLI).
“The aftershocks of a global crunch and declines in commercial and residential property prices in various countries are combining with an inflation shock and in some economies, a monetary response,” says Andrew Milligan, head of global strategy at SLI.
However, volatility in markets means valuation opportunities are starting to be seen, even in financials and credit.
SLI expects valuation opportunities will appear in credit, then equities, then property over the medium term.
The house remains light in UK commercial property as well as European and emerging market equities because of tighter monetary policies and the state of the market, globally.
However, there is potential in certain non-life insurers and specific opportunities set to benefit from emerging market growth.
Milligan says although emerging markets will be slow in 2009, much investment is linked to long-term infrastructure development plans, providing a strong long-term outlook.
“The ability of sovereign wealth funds and other GEM investors to recycle their trade surpluses back into OECD companies and markets, remains remarkably strong, meaning attractive stock-picking opportunities will continue,” he says.
Meanwhile, in the US equity space, innovations in technology offer opportunities within the aerospace and defence sector, says SLI.
In Asia, soaring fuel and food prices are benefiting some Japanese car manufacturers and agricultural companies as hybrid vehicles gain popularity. The need to mechanise Asian agriculture is a key driver for some specialist businesses.
SLI analysis concludes resolution of the credit crunch will take time.
Inflation risks will be dampened by a long period of sub-trend growth globally, with combined risks of recession in the US, UK and parts of Europe, says Milligan.
However, he believes company balance sheets remain strong, negating any need for investment or staff cuts.IFAonline
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