Investment Strategies

Pleasant Economic Surprises Likely In 2011 After Turbulent 12 Months - Merrill Lynch WM

Tom Burroughes Group Editor London 23 December 2010

Pleasant Economic Surprises Likely In 2011 After Turbulent 12 Months - Merrill Lynch WM

Expect to be pleasantly surprised by the economic performance of many countries, Merrill Lynch Wealth Management says, as it notes high levels of pessimism remain at the end of 2010.

The US economy appears to be regaining momentum, although around the world, markets are likely to remain as volatile as they have been over the past 12 months, according to a note from the US firm.

Merrill Lynch WM is modestly overweight on UK equities, strongly bullish on emerging market stocks; neutral on US and Japanese equities; heavily underweight government bonds, bullish on non-government debt, and neutral on property and commodities. On currencies, it expects the euro to have further downside risk against the dollar; it is positive on most emerging market currencies and the Japanese yen.

“Two themes that stand out in 2010 are investor eagerness to hold anything linked to emerging markets, often regardless of price, and the frequently changing sentiment of a deflation/inflation outcome,” the firm said.

“The difficulty in such an environment is diversification, a feature we cannot stress enough,” it continued.

“Like 2009, at the end of 2010 pessimism over a sustained developed market recovery remains high. As we experienced in 2010, next year’s growth should no doubt provide a pleasant surprise and this time it will not be down to only Japan and Germany,” it added.

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