Perspectivas de Inversión 2012 | Repaso Y Previsión Semestral

Executive Summary

In this mid-year review, we will revisit our investment perspectives for 2012 before outlining the asset allocation we recommend for the second half of the year. In January, we expressed the view that the debt issues faced by the public sector would still represent the biggest dangers for the markets and this has clearly proven to be the case. Market participants have once again had to experience extreme levels of stress within the European sovereign debt markets. A Greek exit from the Euro zone was narrowly averted following close elections, while Spain has found itself under intense market pressure since the end of February, leading to a 100 billion euro bailout for its ailing banking sector. The European summit on 28-29 June produced measures that triggered amassive relief-rally of risky assets on the last trading day of the month. The announcement of the possibility for the European Stability Mechanism (ESM) to directly recapitalise European bankswithout adding to the level of sovereign debt was particularly well received by the markets.


As widely anticipated, a slowdown of economic growth has been observed in most regions. Economies are contracting across the Eurozone and the 17-nation region is close to recessionary levels; the U.S. economy has been expanding at a below-par pace and the growth rates of emerging countries have been falling, at times considerably. As expected, the Chinese economy has expanded at a slower pace, but has avoided a hard landing. In most countries, inflation pressures have abated, which has allowed the central banks of emerging countries to adopt looser monetary policies to provide some stimulus for their economies.


We were not expecting companies and households in Europe to benefit from an expansion of credit, despite the two massive longer-term refinancing operations (LTRO) run by the European Central Bank. These operations have contributed to ease funding pressures and decrease fears of a liquidity crunch, but have not improved credit conditions. This has been due to the on-goingdeleveraging of the banking sector and its focus on capital requirements to the detriment of the accordance of new loans.


We recommended a cautious positioning of the portfolios at the beginning of the year due to the high level of uncertainty. The initial appreciation of risky assets came as a surprise, but the ensuing correction confirmed that it was premature to be carrying high levels of risk in the portfolios. Assets providing income such as investment-grade credit, high-yield bonds and high quality dividend paying stocks have generated positive performances and contributed to limit volatility. So far, our forecast for an appreciation of the U.S. dollar against the Euro has proven to be correct. The Federal Reserve has so far refrained from undertaking a new round of quantitative easing and the deterioration of the debt crisis in Europe has weighed on the common currency.


In the next section of the document, we will review the factors that have had the biggest impact on financial markets so far this year and also highlight some of the key economic indicators that we observe to evaluate economic conditions. Following a brief overview of the year-to-date trends of the different asset classes, we will outline our outlook and the asset allocation we recommend for the quarters ahead.

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