AIDAN BAILEY reveals his and market leaders’ insights for the coming year.

In my view, two things are for certain for 2010. Firstly, while the outlook for the world has improved, it won’t be plain sailing for the stock market and global economy.

          The 2009 recovery was government funded, thus is still fragile. Secondly, interest rates are set to rise – great news for savers and most retirees, but not for borrowers. Rising interest rates means the economy is theoretically getting stronger, but if the market deems rate rises to be too much too soon, markets could weaken dramatically. Here’s what financial top guns have to add:

The optimists

·         "Brighter global prospects and the sizeable depreciation we’ve already seen in sterling will yield some benefit to growth in UK exports. We see growth of exports sluggish but positive in 2010, but accelerating quite hearteningly into 2011." Ian McCafferty, CBI Chief Economic Adviser comments on Bloomberg

·         “Debt levels in many emerging economies are low, banks have not been as adversely affected by the credit crunch and consumer spending is not hampered by past debt accumulation. The case for expecting emerging economies to grow more strongly than developed economies has been strengthened.” John Greenwood, Invesco Chief Economist

·         “The current global rally is likely to continue into 2010 with emerging markets leading the economic recovery, whilst the sweet spots of low interest rates and rising profits should continue to drive assets through 2010.” Keith Wade, Chief Economist, Schroders

The pessimists

·         “There is a risk of some substantial falls in asset prices in some markets this year. Since the trough of March 2009, we’ve witnessed huge price rises, often 50 percent or more. As the government takes its foot off the gas in terms of support, we may find the market has gotten a bit ahead of itself and prices may take a tumble as a result. These price changes will likely result in changes to the flow of funds. Investors may take back their cash; move it into cash deposit products, particularly as interest rates are predicted to rise.” KPMG

·         While liquidity levels should continue to offer support into 2010, government stimulus packages will be likely withdrawn, posing a risk for stronger economic growth, company performance and share prices. As consumers and governments continue to pay down excessive debt levels, we believe unemployment will add a further check to consumer spending growth. Although uncertainty on the strength and sustainability of recovery should keep pressure on volatility levels in 2010, we favour a moderate underweight to equities relative to cash, and prefer defensive sectors over more cyclical areas, owing to more favourable valuations.” Simona Paravani, Global Investment Strategist, HSBC Global Asset Management

Aidan Bailey BA (Hons) CertPFS AWP^CM 
General Manager Singapore, International Division