The outlook
2008 was a year of constant disappointments and much consternation, not to mention all that wealth destruction.That said, I believe there is a case for thinking that equity markets could end 2009 on an upbeat note.
The first reason being; not only have we witnessed the biggest financial upheaval of our time, but we are now witnessing the biggest policy response from central banks and governments the world over. Secondly, the Federal Reserve in the US continues to drive long term interest rates down by buying up financial assets, thereby pushing down the cost of borrowing and related funding costs.
Thirdly, falling inflation worldwide will boost household incomes, which should encourage consumer spending worldwide, while commodity deflation should help widen profit margins.
Certainly risks remain, with the threat of a recession setting in motion the forces of deflation. So, in summary, I would therefore advocate defensive assets in portfolios in the form of conventional and index linked gilts and ‘investment grade’ corporate bonds, but I think there remains a case for a rebound in equity markets this year.
By Robert T Race, Divisional Director and
Head of the Manchester office of Brewin Dolphin Limited
