Despite uncertainty investors should go into 2013 with optimism, says Investec

Written by Andrew Holt

Despite on-going and unwelcome uncertainty over the Eurozone economy, investors should go into 2013 with a stronger sense of optimism, according to Vision 2013, a new report from Investec Wealth & Investment (IW&I).

In particular, the year ahead will benefit from a strengthening US economy, firmer fundamentals in developing economies, namely China and India, and a more robust outlook for the UK.

Commenting on prospects for the UK, Jim Wood-Smith, chief investment strategist at Investec Wealth & Investment, said: “For the UK, 2013 promises to be a better year. Having unfortunately been right in our prediction that 2012 would be a year of recession, we are now confident that this year will bring positive surprises.

"We wholeheartedly applaud the Funding for Lending Scheme which may not be perfect but is likely to be a much more productive angle of attack than Quantitative Easing and the early signs have been highly encouraging.

"The UK’s lifeboat is that the global economic cycle is turning up and 2013 will see higher growth, higher equity markets and a firmer housing market.”

The report states that growth in the developed world in 2013 will be supported by emerging economies, most notably China and India.

With regard to China, the latter stages of 2012 were affected by political bottlenecking: the knock-on effect to the economy was a reluctance among business and investors to engage in new enterprises at a time when the fabric of the Communist Party was unknown.

With the resolution of this, it is forecast that 2013 will be a time of debottlenecking and acceleration in China’s economic growth rate.

Jim Wood-Smith at Investec Wealth & Investment said: “The likely icebergs, or bumps in the road, for the global economy are ‘known unknowns’. Markets have had years to analyse and digest the possibilities and long since moved on.

"Central banks have flexed their potentially infinite muscles, confidence is creeping back in, bank profits are rising, the US housing market is firm, credit conditions are easing, money supplies are rising and global growth this year ought to be nicely higher than last year.

"Corporate profits will similarly increase after a poor year in 2012, while equity valuations remain at multi-decade lows relative to bonds.

“If we are right in supposing that we are in the midst of an equity bull market that began in March 2009, then we are probably around half way through. Surveys have repeatedly told us that the average institutional investor is still underweight equity relative to their benchmark, suggesting that the same average institution is underperforming.

"This is still the greatest incentive for many to change an asset allocation, especially at a time when despite such universal and persistent misery amongst investors and commentators alike the returns from equity markets since the first quarter of 2009 have been nothing short of spectacular.”

IW&I’s annual Vision report is published at the start of each year and analyses the previous year’s investment markets.

As well as a global economic round-up, Vision 2013 also contains chapters on selected investment trends and themes that IW&I believes will benefit investors and/ or help drive investment markets in 2013.

Commenting on the US and European markets in particular, Jim Wood-Smith at Investec Wealth & Investment said: “In Europe, we do not wish to pretend that there are not very real and important issues being played out from day to day which still have the potential to unsettle markets for a while. However, their firepower is mostly spent and we expect that the inescapable set-backs will be short and shallow.

“In terms of the US market, we think that inflation will be manifest in equities and house prices as opposed to the high street. As for the so-called ‘fiscal cliff’, we are rather taken with an analogy between the fiscal cliff and the millennium bug – greatly feared but ultimately a non-event.”

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