12 september 2011
Asset allocation strategy  

ANALYSIS OF MARKETS AND PRINCIPAL INVESTMENT THEMES  

The overall economic outlook continued to worsen over the summer amid a political climate in developed countries that was short on determination and even shorter on cohesion. The emergency euro zone summit on July 23 in Brussels failed to dispel doubts over the sustainability of sovereign debt in the area’s most fragile countries. To address these concerns, governments are one by one introducing austerity measures which in today’s already troubled climate will weigh on growth in 2011 and even more so in 2012. Estimates for euro zone growth in 2012 have been sharply reduced to around 1-1.5%.  

In the US, the political stalemate demonstrated by the failure to find a clear and lasting compromise on raising the federal debt ceiling should persist up to the 2012 presidential election. And yet the lack of any improvement in the economy requires bold political initiatives. Confidence indicators released over the summer suggest that there is a significant risk that the economic situation could deteriorate even faster since key factors like jobs and property are still not improving or not fast enough.  

Emerging countries, in contrast, are still in an enviable position. The pace of their own economic cycle forced them as early as the end of 2010 to tighten monetary conditions to deal with accelerating inflation. But the deterioration in the global economic outlook, and the fact that inflation has no doubt peaked, gives them more leeway than before.