Tuesday, January 17, 2012

Which Asset Classes Roubini recommends for 2012 ?

Nouriel Roubini : My global economic outlook is one in which while there will be economic growth, there are significant downside risks that imply risk of recession in the Eurozone, even the UK, slow economic growth in other advanced economies like the US and also slower economic growth compared to last year in most emerging markets. There is economic vulnerability with financial tail-risk and investors are going to remain risk averse. Therefore like last year global equities might move sideways without any clear trend. When risk is on, they might go higher, but when risk is going to be off, it is likely they are going to move downwards. Therefore, I do not see a significant outperformance of global equities in this environment. In this environment, commodities might also move sideways because while emerging markets are still growing robustly, economic growth in most advanced economies is going to be weak. Geopolitical risks in the Middle East like a potential confrontation within Israel, US and Iran could lead to a risk premium in oil prices. We are still in a world in which there are many tail-risks and therefore it is better to be a safe rather than sorry. An investor will be better off by investing into safe bonds of government and countries that do not have significant fiscal vulnerabilities or in companies that have very strong balance sheet in terms of having low debt leverage, high dividends. Companies that are multinational corporations both in advanced economies and emerging markets with sound balance sheets and sound P&Ls probably might outperform. We live in a world in which there will be lots of tail-risks and therefore being defensive in terms of global asset allocation and less exposed to a variety of risky assets, whether it is commodity or equities and being more exposed to things that are more liquid and safe, might be a strategy that minimizes some of the downside risks. - in ET Now

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