Russell Investments recently launched a new blog called The Wire, where the firms talented professionals welcome everyone to aid the development of investing thesis through discussion. In summary of their 2013 outlook research EMEA investment strategist Wouter Sturkenboom put together the video and info graphic below.
Russell’s Positive Expectations:
At the top of the list is breaking the cycle of crisis in Europe. This will require an
effective banking union and a plan to share debt burdens across the region—
mutualization. It also needs a strategy to drag the region out of recession. A high wage,
high consumption Germany willing to act as a demand engine for the region would
significantly improve growth prospects across the eurozone.
We think the U.S. can continue in its 2–2.5 percent GDP growth path. An upside
surprise would be a credible long-term plan to reduce public debt and contain health-
and age-related government spending. This would go a long way toward restoring
confidence in the medium-term growth prospects for the U.S. economy.
China is a story of the cyclical versus the structural. The cyclical slowdown of 2012
looks to have bottomed. The question now is the extent of structural limits to growth.
Pessimists point to poor demographics, over-investment and the potential for rising
bank non-performing loans. Optimists argue that there is a vast untapped labour supply
in the rural sector, that the return on fixed investment is still high and that the growing
middle class is driving the shift towards consumption and away from investment as the
driver of growth. The days of 10 percent-plus annual GDP growth are over. The debate
is over the new growth potential. The what-could-go-right scenario would be signs that
China can sustain growth around 7–8 percent over the remainder of the decade.
Share markets around the world are priced for modest, uncertain growth and most
are trading at P/E ratios below their pre-crisis averages. A trifecta of eurozone solution,
credible U.S. fiscal sustainability and medium-term China growth confidence could be
the trigger for share-market re-rating. This could take the S&P 500 Index, for example,
from its current trailing P/E multiple near 14 times to near its pre-crisis average of 16.5
times. Under this scenario the index could potentially reach 1750 compared to our yearend target of 1500.
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