Quilter, a specialist bespoke investment management, recently issued its autumn 2011 Market commentary.
Global economic growth is slowing and attention remains focused on the policy paralysis in Europe.
Political discord and the lack of a credible plan to solve the debt crisis – and recapitalise the commercial banks – mean investors are increasingly risk averse.
The repatriation of capital from emerging economies shows how Eurozone contagion is now having an impact on other parts of the world.
Bond markets in the US, Japan, UK and some northern European countries are still perceived as safe havens with the result that their sovereign debt yields ended September close to all time lows.
Corporate bond spreads have widened with the increased risk of debt write downs in the financial sector.
Main Stockmarkets fell further and commodity prices such as copper weakened significantly.
The IMF has revised downwards its global GDP estimates reflecting disappointing business investment in the industrialised world and reduced global trade.
Purchasing Manager ‘sentiment’ indices for global manufacturing have slipped signaling continuing weakness. The possibility of recession in the industrialised world in 2012 has therefore increased.
The US has been one of the better performing economies but the recovery in Japan is faltering on all fronts. Several of the peripheral Eurozone countries face extended recessions and even Germany could experience lower growth. The UK is now expected to be one of the weakest economies in 2012 as export markets deteriorate and consumers retrench.
Food and energy prices are expected to ease in the coming months which will alleviate some of the pressure on inflation.
While financial asset valuations, economic growth and financial risk are undeniably important, the situation is now essentially a crisis of confidence caused by lack of political leadership.
Governments took on vast quantities of private sector debt in 2008/9 but their policy of defending unserviceable levels of sovereign debt, bond holders and the owners of mismanaged banks is in danger of choking both the global economic system and growth. Accepting that Greece is not just illiquid but also insolvent at least means we are moving closer to a comprehensive debt restructuring solution.