Equity Markets Will Bounce Back in 2012

Finally some good news!
Don Reed, CEO of Franklin Templeton Investments shared his thoughts as to why he thinks 2012 will be a positive year for the markets; in an article posted on Advisor.ca earlier this week, here is what he said:

 Expect 2012 to mark a turnaround in equity markets and for opportunistic investors to reap the rewards. Smart investors will make money. The markets have been beaten up in the latter half of 2011 – and therein lies the value creation for stock pickers, and, by extension, mutual fund investors.

The good news is…
Volatility is returning to normal levels. The VIX (the Chicago Board Options Exchange Market Volatility Index) is often referred to as the fear index; as it is a forward-looking gauge of the volatility and expectations impacting the world’s largest equity markets. The VIX’s long term average is normally around 20, in the peak of the financial crisis in 2008 it reached 81, throughout 2009 and 2010 it retreated and then climbed again this past summer spiking at 48 in August. By the end of 2011 the VIX returned to the low 20s, suggesting volatility has subsided; and slowly but surely, we will return to some normal equity trading patterns.

Furthermore, after months of baby steps, the euro zone can be expected to finally reach a definitive debt agreement in the first half of 2012. Europe is a life boat and it is in the interest of all nations, including Italy, Greece and the reticent United Kingdom, to keep the ship afloat. Stay tuned.

Mixed view on the US
The debt stalemate may fester through 2012 and we may have to wait until 2013 for any significant developments. But a double-dip recession in the world’s largest economy is looking increasingly unlikely. Corporate America is cash-rich, retail spending is up, consumer confidence is improving, gas prices are falling and businesses are restocking shelves and warehouses. These are all positive indicators the U.S. is on the mend.

Emerging economiesThe outlook remains positive for the emerging economies of Asia, Latin America and South America. Collectively, they have made huge strides over the past decade to restore economic growth and improve corporate balance sheets.

Debt levels in emerging markets are a fraction of what the world’s more mature economies are; and fast-growing middle class means consumer spending will remain strong. Expect emerging markets to speed along at about 5% to 8% growth in 2012. The Chinese economy may cool slightly, but will nevertheless record a healthy 8% to 9% growth next year.

Nowhere to go but upThe 2011 correction has presented some excellent buying opportunities for those ‘buying on the bottom.’ The share prices of some of the world’s best blue-chip companies may be down, but the fundamentals that drive long-term returns remain solid. These well-managed global companies are sitting on billions in cash; dollars that will fund future growth, share buy-backs or dividend increases. This is all good news for prospective investors.

Getting back to the basics in 2012 will help you dismiss the short-term market noise and remain focused on your long-term goals. A well-diversified investment portfolio and some good financial advice; will ensure you reach your goals, and take advantage of opportunities in these uncertain and complicated markets.

Have a great weekend and a positive 2012,



Tracey


You can read Don Reed’s full article at advisor.ca