Trevor Greetham's Investment Clock November: Opportunity in Uncertainty

We are increasingly hopeful of a pick up in global growth in 2013. Developments in the US should mean the next upswing will be more sustained. The Fed has committed to maintain an easy monetary policy stance long into an upturn, even if this causes inflation to overshoot. Rising US property prices should also ease financial strains. A stronger US economy would help other economies to recover, particularly in the emerging markets and Asia.

There are clearly risks out there though. Uncertainties about the euro periphery are set to continue and mismanagement of the so-called “fiscal cliff” could dampen US retail sales and capital spending. However, with a broad range of monetary stimulus measures in place and lead indicators at trough levels, we view market uncertainty as an opportunity to increase our exposure to stocks.

LEAD INDICATORS IN FOCUS

Inflation

• In recent years, the impact of quantitative easing on commodity prices has meant that any pick-up in growth has gone hand-in-hand with an increase in inflationary pressures.
• We believe the premature rise of inflationary pressures is in part to blame for the shortness of the economic cycles since the financial crisis.

Growth

• Our global growth scorecard is negative, but with OECD lead indicators starting to pick up, it is likely to improve from here.

CURRENT ASSET ALLOCATION POSITIONING

• We viewed recent weakness as an opportunity to buy equities and sell government bonds on the expectation of a pick-up in growth in 2013.
• We expect a second leg of outperformance from stocks, with Fed liquidity helping to push up valuations and the economic recovery boosting earnings.
• At a regional level we favour US equities, however, we have also raised exposure to the Asia Pacific and moved overweight in emerging markets – both regions stand to benefit from a US-led economic recovery.

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.

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