GLOBAL - Where before there was a chance that the global economy would flirt with recession but ultimately avoid it, a recession now looks inevitable, according to Swiss Life Asset Management UK CEO Tom Mclntosh. The question is, how deep and how long?
McIntosh says that before September 11, the main factors affecting investment outlook were:
* the threat posed by a persistent overhang of excess valuation and over-optimistic earnings expectations* emerging worries about the sustainability of US consumption* the failure of the monetary authorities in Europe and Japan to take adequate stimulatory action to offset any slowdown in US
How do those factors stand now? According to McIntosh:
* share prices have fallen sharply, quickly reducing a substantial part of the overvaluation implicit in market levels* compared to bonds, shares are the cheapest for some time and earnings expectations into next year have been substantially cut to more realistic levels* investor sentiment is now also very bearish
After the start of the Gulf War, it took around 15 months for consumer confidence in the US to recover to its initial levels. And SLAM says unemployment, which was creeping up prior to the attack, is now set to rise sharply.
SLAM’s “bottom line” for investing suggests:
* the risk of investing in equities is the lowest it has been for some time. However, given the degree of uncertainty and the current obscure economic outlook, strategy should remain cautious - tending to a defensive stance in the near future* portfolios should concentrate on non-cyclical consumer stocks such as beverages, tobacco, utilities, pharmaceuticals and food as well as energy stocks* sectors dependent on discretionary consumer expenditure should generally be avoided, particularly those such as hotels and transportation - particularly airlines - leisure companies and insurance companies
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