Don’t ‘sell in May and go away’
Richard Clark and Simon Patterson, Private Bankers at Barclays, Newcastle share their views on the global investment outlook.
Seeing as 2012 continues to race onwards and we are now well into the second quarter of this year, we can look back on market movements for the first three months with a clearer view. Having seen the best first quarter for equity markets in 24 years, we can undoubtedly expect to see larger investors banking their profits this month. However, we think it would be a mistake for private investors to follow suit…
Having softened a little in March, after a strong run through the winter months, the global economic data that matter most were more or less in line with expectations in April. Meanwhile, growth forecasts have stopped falling and, in some cases have even edged higher.
Of course, we aren’t out of the woods just yet. The bond markets of Italy and Spain continue to struggle and investors rightly remain nervous. The euro crisis, the US growth debate and the details of China’s economic landing all remain unresolved. Nonetheless, we continue to believe that disaster will be avoided in 2012 with room to spare.
The main source of this developed world resilience continues to be the US consumer, whose finances remain much stronger than many realise. Indeed, we expect the next significant move in US household finances will be a return to modest net borrowing as the housing market finds its feet.
Continental Europe remains, of course, the weakest link in the recovery story. The French elections could yet spark increased volatility in Europe’s markets: Mr Hollande’s policies, though not fiscally profligate, are distinctly unfriendly to euro stability and competitiveness. The overshoot of Spain’s budget deficit in 2011, and the slippage in Italy’s timetable for achieving budget balance, both unsettled bond investors. But although we don’t see the Spanish economy stabilising any time soon, we think that the impact on the rest of the euro area will remain containable. Meanwhile economic surveys suggest that the much more important German economy is less fragile than feared, and that the UK is stabilising, although official data remain weak.
Finally, we remain firmly in the ‘soft landing’ camp when it comes to debating China’s prospects this year. The central bank has already started to ease reserve requirements, and looser policy should help keep GDP growth close to 8% through 2012.
Although the old market adage of ‘sell in May and go away’ looks likely to come to pass given the anxieties of Europe and the geopolitical risks evident in the Gulf and on the Korean peninsula, we think that with the ‘big picture’ still intact this would be a mistake for most private investors as the risk of missing a resumed rally is too high. Instead, we would use any May setback to add to equity positions as we still regard them as the cheapest asset class.
As always, we do emphasise that investing in shares is not for everyone. Their value can fall and you can get back less than you invest – if you are unsure, you should seek independent advice.
This was posted in Bdaily's Members' News section by Richard Clark .
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