Market outlook

ING IM: global economic recovery is still on track

sijoitusrahastotING Investment Management believes that the global recovery is still on track even if it shows some scattered signs of fatigue.

ING IM says that risk appetite suffered under the weight of sovereign, fiscal and tightening concerns in recent weeks.

But the corporate sector continues to generally perform well. Aggressive cost-cutting continues to be a tangible, persistent driver of margin and profit outcomes in the corporate sector. While some doubts remain about the sustainability of final demand strength, positive catalysts on the back of productivity gains are still expected to outweigh negative catalysts in the near-term.

Patrick Moonen, Senior Equity Strategist at ING IM, comments: “In the equity markets, we have seen divergence as a result of sovereign debt problems. Countries with a low government debt to GDP ratio, low leverage in their banking system, a high savings rate and running a current account surplus will emerge as winners. We expect markets to be range-bound over the coming period caused by the gradual normalisation of monetary policy. We do not think this is the start of a bear market but we expect this trading range to last until investors have more clarity regarding a solution for Greece. “

Patrick Moonen continues: “I am convinced that eventually the European Union will come to the rescue if necessary. A sovereign default by Greece would have extreme adverse effects on the credibility of the Euro Zone project, the exchange rate and may cause further contagion towards other countries with weak balance sheets like Spain, Portugal, Ireland or even the UK. Also, the banking sector is likely to come under pressure as many banks are holders of Greek debt.”

ING IM points out that divergence caused by sovereign risk was already very visible in the relative performance of equity markets in Greece and Spain compared to Germany and France year to date.

It expects to see more divergence between developed and emerging markets partly due to sovereign risks but also thanks to the relatively more attractive valuations of emerging markets.

ING IM also believes that monetary policies are generally expected to remain loose until at least the end of 2010. This is motivated by the positive though lacklustre economic growth expected for this year and next.

Patrick Moonen thinks that Asian economies and Brazil may need to be a bit more aggressive in their policy tightening to curb potential bubbles and limit inflationary expectations. This should be viewed as a sign of strength rather than weakness.

ING IM’s multi-asset portfolios are overweight equities and underweight fixedincome.

Eric Siegloff, Head of the Strategy & Tactical Asset Allocation Group at ING IM, comments: “Macro supports are clear from still accommodative policy settings, improved financial conditions and the inventory cycle. But markets have taken a set back on China tightening, Greece fiscal stress and US political and banking regulation developments. Nevertheless, equity divided yields remain constructive versus those offered in fixed income -government and high yield.”



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