The mother of stimulations
Sincethe events of September 11 last year, a staggering US$10 trillion has been erased from global markets, a figure approximately equivalent to the entire US gross domestic product.
Despite this, Sagitta head of investments Jonathan Pain was remarkably bullish in his expectations for future growth of both the Australian and global economies, citing September 11 as the catalyst for such growth.
Calling it the “mother of all stimulations,” Pain says the September 11 attacks have re-invigorated the US economy.
“The US is re-arming itself. It is the biggest injection of military spending since Ronald Regan was in power. We may see for the first time the US employing its full military power.”
Pain believes that through such activity, growth of three to four per cent is achievable this year.
He also sees Japan recovering from its years of malaise, suggesting the Japanese market will record positive growth this year.
But tempering such signs of market stimulation, Pain outlined three clouds on the horizon that the market should be cautious of.
Accountability: The first cloud represents the issues of integrity and accountability for client funds, which the money management industry had, according to Pain, largely been guilty of ignoring in the past.
“Money managers should be speaking out against outrageous corporate payouts to company board directors and so forth. We must be taking greater charge in how companies are run,” Pain says.
Oil:The second cloud concerns the politics of oil.
“If the US invades Iraq, the Middle East will use oil as a geopolitical tool against the West. Oil will go up to more than US$50 a barrel and monarchies friendly to the West, such as Saudi Arabia, will be over-thrown,” Pain says.
“The US has already stated that it will be taking a proactive stance against terrorism and US citizens seem to support an invasion of Iraq.”
Brazil: The Brazilian economy, says Pain, is currently unhealthy, with investors and businesses pulling out of the market. This is having a destabilising influence on other Latin American economies.
But despite some gloomy scenarios, with a US led recovery of possibly four per cent this year, Pain remains bullish in his expectations for future market growth.
“I believe the worst is behind us in economic terms. Western economies are robust and Japan looks to be getting better.”
AUTHOR
Jason Spits
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