Experts predict slow global growth and low inflation

A panel of investment experts have expressed cautious optimism about the short-term future of Australian and global equities at the 2010 Portfolio Construction Market Summit, and warned against holding large amounts of cash or sacrificing liquidity.

The summit aimed to provide industry professionals with a clearer understanding of the short to medium term outlook of investment markets, focusing on global debt and global equity markets and their impact on portfolios.

Panellists agreed that developed markets were likely to experience slow growth for at least the next few years. This was likely to be outstripped by growth in emerging markets such as China, but the Chinese market was not big enough to provide the panacea to the world’s economic difficulties.

Sovereign debt and the way in which governments decide to finance their debt was also a major concern. “Developed governments are subjected to enormous political pressures. There is massive risk associated with governments not fixing the problems properly and implementing the wrong policies,” said Farrelly’s principal Tim Farrelly.

There was concern about the amount of money flowing from the West into Asian markets, while perhaps surprisingly there was a consensus that inflation was not a short-term risk — in spite of how much money had been printed throughout the crisis by countries like the US.

Equities seemed to be the most favoured asset class at the summit, noted van Eyk Research founder Stephen van Eyk. Equities provided the opportunity to outperform indices for managers who invested sensibly, while it was also important to maintain flexibility in an environment of elevated volatility, he said. Japan may also provide an attractive short-term investment since, as van Eyk added, “it can’t get any worse”.

Head of multi strategies at BT Investment Management Robert Swift agreed that it was important to be in transparent, liquid investments — even if it meant sacrificing immediate yield. He also warned people holding Australian stocks not to plunge into emerging market equities, because they might be doubling up in sectors such as mining and resources.