Trevor Greetham´s Investment Clock April: Japan leads the way

The investment clock is in the equity-friendly ‘Recovery’ phase of the global business cycle with growth indicators positive and inflation indicators pointing downwards on the back of continued commodity price weakness.

After an eight month upswing, however, growth lead indicators are close to peaking and US economic data has surprised negatively. We reduced our large overweight in risk assets in March, primarily by selling commodities.

Risks of a downturn vary regionally and our preferences within equity markets reflect these differences. Japan’s prospects look best given unleveraged corporate balance sheets, outright fiscal ease and its plans to double the monetary base. The US is second best with limited fiscal tightening, open-ended QE and a housing recovery that suggests an end to deleveraging.

LEAD INDICATORS IN FOCUS

Growth
- Our global growth scorecard rose only slightly in March, boosted by improvements in business confidence and economic forecasts in Europe and Japan.

- Growth lead indicators appear to be close to peaking.

Inflation
- Our inflation scorecard fell sharply on the back of commodity price weakness.

CURRENT ASSET ALLOCATION POSITIONING
- Japan is now our favourite market. Japan benefits from dollar strength and has a very positive domestic policy setting from an equity investor’s point of view.

- We continue to express a strong preference for US equities over Europe on the basis of a pro-growth policy mix and broadening signs of recovery in the housing sector.

- We trimmed our commodity overweight to neutral. Lead indicators are close to rolling over and the asset class is being hampered by dollar strength.

Trevor Greetham joined Fidelity in January 2006. He is Director of Asset Allocation and in addition to managing funds, Trevor is a member of Fidelity’s Asset Allocation Group. Prior to joining Fidelity, he spent ten years at Merrill Lynch, where he was Director of Asset Allocation. Trevor began his career with UK life insurer Provident Mutual.  He holds an MA in Mathematics from Cambridge University and is a qualified actuary.

This document is for investment professionals only and should not be relied upon by private investors. It must not be reproduced or circulated without prior permission. This communication is not directed at, and must not be acted upon by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity/ Fidelity International means FIL Limited, and its subsidiary companies.  Unless otherwise stated, all views are those of the Fidelity organisation.  Investors should note that the views expressed may no longer be current and may have already been acted upon by Fidelity.  The research and analysis used in this material is gathered by Fidelity for its use as an Investment Manager and may have already been acted upon for its own purposes. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Fidelity only offers information on its own products and services and does not provide investment advice based on individual circumstances.  Fidelity, Fidelity Worldwide Investment and the Fidelity Worldwide Investment and F symbol are trademarks of FIL Limited. Past performance is not a reliable indicator of future results. The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Fidelity’s legal representative in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich. Paying agent for Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich. Malta: Growth Investments Limited is licensed by the MFSA. Fidelity Funds is promoted in Malta by Growth Investments Ltd in terms of the EU UCITS Directive and Legal Notices 207 ad 309 of 2004.  The Fund is regulated in Luxembourg by the Commission de Surveillance du Secteur Financier. Issued by FIL Investments International (registered in England and Wales), authorised and regulated in the UK by the Financial Conduct Authority. IC13/59