Armstrong Investment Managers 2011 Global Macro and Multi-Asset Outlook

Armstrong Investment Managers (AIM) have laid out their 2011 Global Macro forecasts and outlook for various asset classes in 2011.

Dr. Ana Armstrong comments "We expect 2011 will be characterised by a continued global economic recovery but the divergence between countries will be even more pronounced than in 2010. Rapid growth in many developing countries will be fuelled by very accommodative interest rate policies in the West. Many Asian countries have their currencies officially or unofficially pegged to the US, which is suffocated by debt and high unemployment. These pegs force a stimulative monetary environment, despite high growth and inflation across Asia. Within Europe, Germany has a low output gap but has an interest rate policy reflecting the deep recession in Southern Europe. "

AIM believe these imbalances will put pressure on the Euro and the Hong Kong Dollar during 2011. and Dr. Armstrong comments "The monetary policy of Hong Kong has been linked to that of the US for the past 25 years and has proved to be one of the most successful currency pegs. However, a drastic change in the Hong Kong economy, from manufacturing to a service-oriented economy, has opened up new issues. Hong Kong has transferred its manufacturing to the lower cost base in China, its main trading partner." She does not expect that the UK or US will face liquidity issues in the short term, but does have longer term concerns, “We do not expect that 2011 will pose liquidity issues for the US or UK…however we are concerned that these countries will face liquidity issues by 2014”

"The most important thing investors can do today is to position their portfolios against much higher future inflation” says Dr. Armstrong as she states "Governments will come to the realisation that monetising their massive debt is much more achievable and manageable than growing and cutting their way out. The printing of money sews the seeds of inflation and it will be a major problem in the second half of the decade."

AIM state that Stocks have a number of factors working in their favour in 2011 . Equity valuations remain undemanding and are much more attractive than bonds. The corporate world has much better balance sheet than Western sovereign nations and households. However earnings growth will slow in the West over the coming year. Cost cutting and stronger than expected revenue in 2010 has driven very strong profit growth, but this may now mean earnings estimates are too high in 2011"

Patrick Armstrong, joint Managing partner of AIM, says "Equity valuations remain undemanding and the corporate world has a much better balance sheet than Western sovereign nations and households. We expect high dividend paying companies will benefit from investor demand for yield and a rotation out of bonds into high yielding equities will occur throughout 2011”

AIM's highest expected returns come from Copper (25%) and Dividend futures on the Euro Stoxx 50 (25%). "We expect Copper will rise by more than 25% in 2011 based on tightness in the physical market and growing Chinese demand" says Mr. Armstrong and "Consensus growth for Euro dividends is at 10% per annum while the 2015 dividend future is 13% below the expected 2010 dividend, this represents a very attractive entry point”