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Market Perspective Summary

  • Economics

Capital Markets Outlook

Fourth Quarter 2011

January 23, 2012
A Turbulent Year for Markets

As volatility goes, the fourth quarter saw a continuation of the dizzying gyrations that global stocks endured in 2011. However, the quarter’s positive return did help reduce equity losses for the full year.

Many of the familiar concerns remained, including uncertainty about the outcome of Europe’s financial troubles. There was widespread concern over the slowing economy in the euro area and the fate of the euro currency itself. Still, the global economy continued expanding in 2011.

And, despite the slowdown in Europe, we’re forecasting further growth in the world economy in 2012, led by the emerging markets, particularly Asia. We’re also more positive about the prospects for the US economy than the consensus estimates.

Still Cautious About Equities

Our assessment of capital markets is much the same as it’s been of late. Long-term fundamentals argue strongly for equities’ return potential, but volatility and risk aversion will be with us for a while.

Although we think equities may remain volatile in the short term, we also think this climate offers opportunities for active management. Thus, our managers are finding huge distortions in the valuations of individual shares, opening up the chance of what we believe could be strong future outperformance. Our active approach can also offer useful protection against inflation, should that become necessary. And we still see opportunities in bonds, where differences in yields create fertile ground for active managers.

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