Global: Market themes in 2010
Fri, Dec 18 2009, 13:32 GMT
by Allan von Mehren
- In this article we highlight some of the main themes that will shape market developments in 2010.
- In many ways 2010 is likely to be trickier as many issues will be less straightforward than in 2009. Growth will look murkier and some of the life support to the financial system will be turned off creating uncertainty.
- We recommend a slightly defensive stance with investment in high-quality equities and credit. Bond yields are expected to rise.
- Momentum in the business cycle will likely peak in Q1 and hence the tailwind to risky assets from cyclical momentum will fade.
- On the other hand, sustainability should prove itself with US job growth returning in early-2010.
- The ECB is expected to hike before Fed and the gradual withdrawal of liquidity will remove some of the support from low-quality sovereign bonds.
- The wall of money will still be around in 2010 but not to the same extent as in 2009. Hence bond yields should rise. On the other hand, with very low interest rates the search for yield will continue and support high-quality credit.
- The extent of losses in the banking sector is a highly uncertain factor and markets may become more vulnerable to event risk when cyclical momentum fades.
