Investors who missed out on last year's bull market could get a second chance in 2011 as a renewed bout of economic weakness forces central banks to step in with looser policy and more quantitative easing, says
Trevor Greetham, Fidelity International's Director of Asset Allocation.
In a recent webcast, Greetham says investors can expect further market dips as growth cools off in the coming months, but believes these will lay the groundwork for solid buying opportunities for equity investors.
"We are starting to see lead indicators roll over and that suggests the pace of recovery is going to slow as we go into 2011,” said Greetham.
“We are also likely to see turbulence in the financial markets as the world absorbs the fact that there is a slowdown and company earnings reports start to fall short of expectations.
"A lot of people will be worried about a double dip but there is a lot of spare capacity, particularly in the developed economies, and with inflation pressures muted central banks can cut interest rates or print money if necessary. All this sets a positive scene for 2011."
Greetham, who manages Fidelity International's Multi-Asset Strategic funds, has moved underweight in equities and commodities for the first time in 12 months on the expectation that there will be better opportunities to buy ahead of a new rally in 2011.
"I have trimmed down the large overweight equity positions in our multi-asset funds with a view to possibly buying during dips later in the year," said Greetham.
"Stocks tend to underperform bonds until lead indicators trough and, given the usual ebb and flow of the inventory cycle, this is unlikely to happen before late 2010 or early 2011.
"Valuations are still good and I believe there will be good buying opportunities later in the year, so investors who missed out on the first leg of the bull market may find themselves presented with attractive entry points in the coming months.
"The buying opportunities will be marked out by periods when people are panicking. Investor sentiment will get very negative and there will be a lot of talk about double dips as stimulus is withdrawn.
"Whilst the pace of the recovery will slow into 2011, I believe we are unlikely to see a double-dip recession in the world economy. I am optimistic about 2011."
Greetham's multi-asset funds are currently underweight equities and commodities relative to their composite benchmarks, slightly overweight property and overweight government bonds.
With respect to equities, he is overweight Asia, the US and the emerging markets and underweight the eurozone. As the sector level, he has a positive tilt on consumer, technology and healthcare and is underweight industrials and financials."
In relation to the UK, Greetham says the economy should be able to cope with planned austerity measures because of the flexibility policy makers have to introduce further quantitative easing and weaken sterling.
"The moves to tighten fiscal policy aggressively, at a time when global growth is peaking, hold some risks,” said Greetham.
“I do think policy makers have got to be very careful here but in the end I think the Bank of England will print more money and the situations will not necessarily end badly for investors.
"The eurozone, however, is facing substantial risks. Peripheral economies are being asked to cut spending aggressively when they can't devalue and they can't print their own money, so we may continue to see negative focus on Europe for the rest of this year."
To listen to Trevor Greetham's webcast on Fidelity International's website -
https://www.fidelity.co.uk/investor/research-funds/managed-solutions/multi-asset/muliti-asset-video.page
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