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Market views

This section of the site contains an overview of our global investment strategy and a review of recent developments within the major world markets.

The information contained in these pages has been derived from internal sources that we consider to be reasonable and appropriate. It also includes our views and expectations, which cannot be taken as fact.

Investment markets and conditions can change rapidly and as such the views expressed should not be taken as statements of fact nor should any reliance be placed on these views when making investment decisions. Past performance is not a guide to future performance.

 Global Investment Strategy - End of December 2009

Current Investment Policy -- - Neutral + ++
Asset Allocation <<Cash  Bonds Property>>
Equities		  
Equities   Europe (ex UK), Japan, Asia, Emerging Markets US,
UK		  
Bonds   UK Gilts Overseas Bonds UK Investment Grade Bonds   

 Policy changes over the month, when applicable, are shown by arrows (<<, >>)

Economic growth
There have been some upward adjustments to our real GDP forecasts compared to a month ago. Our central view is that the economies of the main developed nations (the average of the US, UK, continental Europe and Japan) will contract by 3.6% (3.7% previously) in 2009 before picking up moderately by 1.8% (1.4%) in 2010 and 2.8% in 2011. For the world including developing nations we expect - 1.1% (-1.3%) growth in 2009 (using PPP weights), and a 3.4% (2.7%) pick-up the following year, with a 4.2% (4.1%) growth rate pencilled in for 2011.

Inflation
There have been no material changes to our inflation forecasts compared to a month ago. The developed world headline rate of inflation is expected to average -0.2% this year and 1.1% in 2010, while core prices (excluding food and energy) are expected to rise by an average 1.1% in 2009 and by about 0.8% a year later. Prices should rise modestly further in 2011 and we initially forecast an average 1.2% and 0.9% for respective developed world headline and core inflation.

Interest rates
We have made no changes to our interest rate forecasts compared to a month ago. The Bank of England is likely to keep rates close to zero until at least the middle of next year, thereafter raising rates to 1.75% by the end of 2010 and 3.25% by the middle of 2011. The European Central Bank is also forecast to maintain rates at 1% until the autumn at least; thereafter, we expect a gradual rise to 1.25% by December 2010 and 2% by the following summer. In the US, the Fed Funds rate is expected to remain close to zero for the first half of 2010, rising to 1.75% by December and 3% by June 2011, while the Bank of Japan is expected to keep interest rates at 0.1% for at least another 18 months.

Bonds
Our forecasts for ten-year government bond yields have been pushed a little higher, primarily in the UK but also in the US. For US Treasuries currently yielding 3.5%, we expect a rise in yields to 4.1% (4% previously) by winter next year. In the UK, we have added another 15bps to forecast 4.4% gilt yields in 12 months’ time. We expect to see German bund yields rise to 3.6%, and in Japan our forecast remains at 1.5%. Corporate bond markets are now considered fair value from a medium to long-term investment perspective.

Equities
There have been no changes to our equity market point forecasts since our last report, although we are debating whether to raise our equity point forecasts a touch as a result of the small real GDP forecast upgrade highlighted above.

 

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Scottish Widows Investment Partnership Limited (SWIP) is registered in England and Wales, Company No. 794936. Registered Office is at 33 Old Broad Street, London EC2N 1HZ. Tel: 0131 655 8500. SWIP is authorised and regulated by the Financial Services Authority and is entered on their register under number 193707 (www.fsa.gov.uk).