by Donavan Lim
Investors are advised to focus on companies with strong fundamentals amid uncertainty in the world markets, said Threadneedle Investments during the group’s Mid-year Market Outlook.
The investment manager said its economic forecasts are below consensus, adding that the eurozone remains the key risk.
“We expect the eurozone economy to shrink by 1 per cent in 2012 and for the UK to be flat,” stated Mark Burgess, Chief Investment Officer of Threadneedle Investments.
The austerity measures taken by various eurozone governments have caused turmoil and dissatisfaction in their society and turned voters’ sentiments against incumbents. Further wages in Southern Europe are largely uncompetitive with youth unemployment running at 50 per cent in Spain and Greece.
Meanwhile, Threadneedle expects Japanese and US economies to chalk up growth of 2 per cent each with the former recovering from last year’s tsunami and the latter aided by shale gas production.
In such a backdrop, it encouraged investors to take a long-term view on equities investment.
“Research has repeatedly shown the merits of investing at a low valuation and holding for the long term. This gives us confidence that, if we look beyond the day-to-day economic news flow and focus on well-managed businesses, we will be rewarded with healthy total returns,” noted Burgess.
In particular, Threadneedle said investors must look for stability and quality in their portfolio, such as those well-managed companies with robust balance sheet and high dividend yield.
“Companies offering sustainably high dividends are also likely to come increasingly into favour given the global search for income and the muted prospects for capital growth,” said Burgess.
Fixed income products, on the other hand, does not interest Threadneedle. The fund manager is underweight in fixed income with focus on credit rather than government bonds as the latter is currently offering near-zero yields.
Commodities, however, are still on Threadneedle’s favourable side.
“We continue to be positive on commodities as we believe that emerging market growth will continue to underpin demand while supply could be disrupted by geopolitical factors,” Burgess said.