A W-Shaped Recovery?
Ignoring the headlines in the popular
press, many people in the asset management industry are worried
that we may well get a W-shaped recovery, where having briefly
recovered from the near-death experience of 2008, the economies of
the world slide back into recession.
This might be prompted by a hike in interest
rates because of a surge in inflation which would dampen the stock
markets and company profits and probably result in more
unemployment. Higher rates would also cause problems for those on
the brink with their mortgages and that would have knock-on effects
for the economy as well. If governments are going to avoid losing
their ratings they will have to start making cuts in spending and
that too would add pressure to the fragile recovery.
So it is hard to get excited by the prospect
of a huge general recovery for the world economy when such large
parts of it have got into so much debt and with
all its consequences. However, my view is that Asset Managers are
going to be winners whatever happens.
Savings rates are soaring in UK and elsewhere
as a natural reaction by people in tough times to horde their
resources. Savings equal money to manage for Asset Managers; you
just have to make the right sort of product to attract it.
Sew-sawing stock markets will make some retail investors wary of
equity investment perhaps, but for those brave enough the fresh
money will end up financing the best new ideas with the best
potential for returns. If the economies of the world do make a full
recovery (probably thanks to China), then stock market values will
rise and so attract more money.
It looks like being a good time to be an Asset
Manager.
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