Milford’s Investment Committee believes that volatile market conditions will continue for at least the remainder of this year, particularly from ongoing issues in Europe. There is clearly no “silver bullet” that will fix the issues in this region overnight and even if there was the Germans do not seem prepared to fire it!
We are mindful that what ever happens in Europe, global markets could be impacted by the increasing risk that corporate earnings in some markets will disappoint. The upcoming US June quarter end corporate earnings season will be an important test as some US companies are suggesting that the global economic slowdown is starting to materially impact on their revenue growth.
Of course China remains a key economy for this part of the world and is clearly slowing down. China could actually be a source of positive surprises later in the year as they accelerate their stimulus measures in response to the economic slow down in that country but there is still a risk of a hard landing and we continue to monitor China closely.
Given these global risk factors, we still prefer the Australasian region due to lower sovereign and company earnings risk in this part of the world (although some Australian companies may struggle to meet expectations).
Importantly, while overall market returns are likely to be modest in 2012, we feel it will still be a stock pickers market where a disciplined buy and sell process should work well (eg good companies getting over sold when markets get too bearish and bad companies rising too far when markets get too carried away).
We also think that Government bonds both here and overseas have got to very low levels and are not attractive at current rates.
High yield investments are a good part of the market to focus on, although this does require strict investment disciplines to be successful (not all high yielding investments are created equal!).
Anthony Quirk
Managing Director