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Schroders Alan Brown

Schroders’ Crystal Ball Outlook for 2012

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Schroders’ chief investment officer Alan Brown (pictured) and European economist Azad Zangana give their outlooks for 2012…

Brown says: “The odds are even more stacked against Government bonds in most of the developed world (with the notable exception of Australia). Timing remains uncertain, but strategically this does not look like a good time to be long duration. And we face significant tail risk credit exposures in a number of weaker sovereigns.

“Equity assets are attractively priced as long as we can avoid Double Dip. However, any material increase in the likelihood of Double Dip should be treated extremely seriously indeed.

Strains within the Eurozone are unlikely to be resolved without some kind of restructuring or change in membership. The all-important question is whether a restructuring is ‘orderly’ or ‘disorderly’.”
 
Zangana says: “The UK is caught in the midst of a serious European Credit Crunch. We forecast the UK to follow the Eurozone into a recession in 2012.

“As a result, we expect UK inflation to surprise on the downside, though outright deflation is unlikely. However, the unemployment rate is set to rise to over 9%, while wage growth will grow by a mere 1% in nominal terms.

“The housing market is in a very fragile state, and the recession we expect next year is likely to cause house prices to fall by about another 6%.“

Though the coalition government has managed to convince markets that Gilts are almost as safe as German Bunds, the Chancellor is highly likely to miss his fiscal targets if our view on the recession crystallises.“

As for the Bank of England, we expect interest rates to be kept on hold until 2014, and the bank to do at least one more round of quantitative easing, but possibly even two or three! This is because we do not believe QE has much of an impact on the real economy while banks are being forced to deleverage.”

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