Recovery due in 2010… so what does Henk Potts think about investment opportunities in 2009?

Both the US FED & the National Institute of Economic and Social Research (NIESR) agreed this week that it is unlikely we will see an immediate change in terms of fiscal policy and that the economic recovery is not going to fully begin until 2010.

Head of the US Federal Reserve, Mr Bernanke, stressed that despite glimmers of improvement in the economy, the Fed intended to keep interest rates extremely low for an “extended period”:

“I want to be clear that we have a very long haul here because, even if the economy begins to turn up in terms of production, unemployment is going to stay high for quite a while, so it’s not going to feel like a really strong economy,” he said in his biannual report to Congress.

Also,the National Institute of Economic and Social Research (NIESR), predicts that UK GDP will fall by 4.3% in 2009 before growing 1% in 2010 and 1.8% in 2011.

So what does this mean for the ordinary investor in 2009? Many of us are left wondering what we should do to make the most of the markets in the current economic climate.

If you tend to adopt a more cautious or moderate approach to investing then you might want to consider investing in a product which offers attractive income compared to a typical high street retail savings account, such as our iShares Corporate Bond (SLXX).

ETFs are traded like shares and may not be for everyone. They closely track the performance of an index and as such their value can go down as well as up and you may get back less then you invested.

Find out more about the iShares Corporate Bond >>

If however you have a more bullish outlook you might consider investing in equities. Henk Potts, Equity Strategist at Barclays Wealth cites five stocks to watch in an article in our up and coming summer edition of Smart Investor magazine.

Henk says:
‘Continuing growth in emerging markets has offered some hope for recovery. BHP Billiton is an attractive option because of its superior operational track record… Login and visit Investment ViewPoint from our Education tab to find out which other stocks Henk has identified >>

If you are not yet a client open an account today and you will benefit from our market-leading research and educational content including Smart Investor and Investment ViewPoint.

The shape of things to come?

L, U, V or W? That is the main question investors are asking when considering what shape or pattern the market recovery will take, if and when it materialises.

After a turbulent first three months of the year, where the global economy remained apprehensive about further after-effects of the credit crisis and waited anxiously for the first signs of good news, positive economic data started to emerge across March and April. This led to a rally in the second quarter with the markets eager to accept the view that recovery was on its way.

In our Investment Viewpoint from 24 June “Road to recovery always going to be rocky” we noted the effect of less optimistic global growth forecasts on the markets, as equities, commodities and currencies all lost ground, and we questioned what stage the economy was at on the path to recovery. Was it a wobble, a correction or a bear market clawing back?

The past week saw further market movement in a positive direction, which added fuel to the debate on the shape and timing of an economic upturn. The Fed revealed upward revisions in their projections for growth and inflation, lessening their concerns on the risk of a prolonged bout of deflation. China revealed a year-on-year growth in Q2 GDP of 7.9%, up from 6.1% in Q1. And equity markets rose, in the US on the back of a strong set of quarterly figures and a bullish outlook from Intel, the world’s biggest chipmaker, and in the UK, driven by mining stocks benefiting from gains in metals prices.

The bulls took this encouraging news by the horns as markets bounced away from short term lows seen in the previous weeks. In the US, the S&P 500 index closed above 940 points on 16 July, a gain of 7% since 10 July. Similarly the FTSE 100 closed at 4361.8 points, up 5.7% over the same period.

And yet, even though the bulls have dominated the week, there were still mixed signals being issued. Both US and UK unemployment data last week was pessimistic. UK jobless figures showed unemployment to be at its highest levels since January 1997 in the three months to May, and mixed into the Fed’s growth and inflation forecasts was concern about the US labour market, where their projection for unemployment was revised higher. Had the more optimistic news not been there to offset these announcements, the economic outlook for the week could have been very different.

So although it was a week for the bulls, the pattern of recovery remains unclear. With most commentators ruling out the ‘L’ shaped recovery (which is effectively a depression), the U, V and W models all remain possibilities and it is interesting to consider what recent market movements are contributing to that eventual outcome.

What’s your view? To find out more on the different scenarios for recovery shapes and what they mean, look at the summary chart featured in our recent Smart Investor email.

Remember that you can stay close to market activity throughout the day by logging into our Research Centre and tracking the movements of the index or equities of your choice.

And if the S&P 500 is an index you track, you may be interested to know more about our latest structured product, the US Supertracker Investment Note Issue 2, which follows that index. Although structured products are not suitable for everyone; when investing in these products you should be aware that you may receive back less than you invested. If you are unsure about the suitability of structured products for you, you should seek independent advice.

G8 Summit Review

Last week saw much of the investment community turn its focus to the G8 summit in L’Aquila, Italy, where the leading eight ‘industrialised’ rich nations converged to discuss their outlook on the world economy.

Perceived by some to be a staging post ahead of two more important economic summits taking place later in the year – September’s G20 in Pittsburgh, the first hosting for new US president Barak Obama, and December’s UN climate change conference in Copenhagen – there are others who believe the format of the G8 group requires overhaul. Its membership has been called into question, with nations like China and Brazil currently excluded despite their nominal GDP now surpassing that of member state Canada’s. And with the wider G20 forum emerging as the main platform for tackling the global economic crisis, the challenge to the effectiveness of the G8 is understandable. Indeed, the forum members themselves have acknowledged this in part, with over 20 additional national leaders invited to the table in L’Aquila.

Debate is ongoing as to the success of the summit. The main agenda items were climate change and the control of emissions, and food aid. Supporters of the G8 have pointed to the key decisions taken on these two topics as achievements – a commitment to control global temperature rises to a maximum of 2 degrees centigrade and a pledge of $20bn over three years to a food security fund which will shift focus from basic food aid to supporting sustainable farming solutions. Detractors however point to the lack of agreement on other matters, such as a base date for their 80% emissions cut commitment, and the partial involvement and (importantly) lack of commitment from the guest emerging nations, among them China, India, Mexico and Brazil.

There were two other main observations from the summit. Firstly, it was clear that the emerging markets are of increasing importance to the success of such global debates. It is therefore likely that some sort of structural change to the forum will result although what shape or, more symbolically, number that will take remains to be seen.

Secondly, the influence on the talks that the change of tone from the US President Barak Obama had was evident – for example, Obama came to the table with a mandate for climate change from the House of Representatives, the first time a US President has done so in over a decade. Many commentators see this level of strength as a further indicator of the US ability to take pole position in moving the global economy further towards recovery.

For more insight into emerging markets, read our latest featured Investment ViewPoint: Analysis.