Gloom abounds for 2012: according to many commentators, the Eurozone is about to implode under the weight of the sovereign debt crisis; Chinese growth is set to falter; the US needs more monetary stimulus; the UK is set on a course of fiscal austerity which may already have triggered recession.
We beg to differ: a drop of almost 19% in the FTSE-100 from high to low last year (February to October) has already discounted to a large extent this year’s recession. Equities anticipate global events typically by six months, and by June will be focusing on recovery in 2013. Superior returns are achieved by buying when all around is negative: canny investors are buying now.
One major turnaround factor, in our view, is the immense cash surplus of the global corporate sector (excluding financials). A McKinsey estimate recently put the cash surplus at around two trillion dollars. Although some of this will go into share buybacks, it will take only a modest recovery in business sentiment for a large proportion to be spent on new investment and on acquisitions.
The problem, of course, is that sentiment will not recover as long as the eurozone crisis hangs over us. A lack of coherent economic leadership, a fragile banking system and diametrically opposed economic efficiencies in the constituent countries mean that the problem will still be around for all of the year ahead and into 2013 as well. We think that the solution lies in evolutionary steps towards fiscal union over a protracted period. Eventually markets will start to factor this in as a process rather than looking for a quick-fix solution.
Our stock selection focuses on a range of criteria, including cash generation, inherent growth potential, and valuation. We have included some yield plays, and one of the gold majors as a hedge against setbacks to our central case. Finally, we include two small-caps with great potential.
Download our FREE REPORT by clicking the link below now!
You have clicked on an area of our website which is only available to registered users. To see this page in full, please login now using the fields below or register
