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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 - June 2009

Current Investment Policy -- - Neutral + ++
Asset Allocation   Property Bonds Equities
Cash		  
Equities   Europe (ex UK), UK, Japan, Asia, Emerging Markets US  
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 minor changes to our economic growth 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 3.8% in 2009 (revised down from -3.5%) before picking up moderately by 1.2% in 2010 (revised up from 1.1%). For the world including developing nations we expect - 0.7% growth in 2009 (using PPP weights), and a 2.8% pick-up the following year.

Inflation
Our inflation forecasts are broadly unchanged compared to a month ago. The developed-world headline rate of inflation is expected to average 0% this year and 1% in 2010, while core prices (excluding food and energy) are expected to rise by an average 1% in 2009 and by about 0.8% a year later.

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 tightening to 1.75% by the end of 2010. The European Central Bank is also forecast to loosen policy to 1% and maintain rates at this level for at least a year; thereafter, we expect a gradual rise to 1.5% by December 2010. In the US, the Fed Funds rate is expected to remain close to zero for most of 2009 and the first half of the next year, rising to 1.75% by end 2010. 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 remained unchanged compared to last month. We continue to expect higher bond yields across all major government bond markets on a 12-month investment horizon. US Treasury yields are expected to rise significantly from 3.2% currently to 3.9%, UK gilts from 3.5% to 4%, German bunds from 3.4% to 3.5% and Japanese government bond yields from 1.45% to 1.5%. Corporate bond markets remain attractive from a medium to long-term investment perspective. A strategy of gradually buying new issues at a discount to the secondary market makes most sense in the current environment. There is a preference for non-cyclical rather than cyclical company debt, and investmentgrade rather than high-yield bonds.

Equities
We have not made any changes to our central equity market views compared to a month ago. Our most likely scenario remains that markets will rally further over a 12-month horizon, but accompanied by a wider than usual trading range.

 

 

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Scottish Widows Investment Partnership Limited (SWIP) is registered in England and Wales, Company No. 794936. Registered Office is at 10 Fleet Place, London EC4M 7RH. 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).