Mercer Outlines Investment Opportunities and Risk in 2013
Institutional investors should have one eye on the opportunities that could arise from a tentative economic recovery and the other on managing the substantial risks that remain, according to a report from consultancy group Mercer.
Mercer expects structural changes such as urbanisation and the desire for sustainable growth to provide new investment avenues. The consultancy also suggests that investors such as treasurers with excess liquidity and “the financial elbow room to explore a number of investment avenues” should seek to capitalise on their flexibility.
“Although uncertainty continues to hover over the global economy, heightened by the degree of policy experimentation, there are grounds for believing that some lifting of the gloom will occur in 2013,” said Andrew Kirton, global chief investment officer for Mercer.
“‘Safe haven’ assets are still pricing in at the same subdued levels and yet the sense of crisis has abated. If the corporate and private sector state of mind shifts gear from no growth to low growth, this bodes well for the performance of risk assets such as equities, and may trigger competitive behaviour and improving economic conditions. Wage restraint, corporate restructuring and an improving credit environment in parts of the West may all also signify some revival of market spirits.”
According to Mercer, while a ‘more of the same’ scenario might apply to Europe, and possibly the UK, there are indications that 2013 will see broader growth, spurred by improving economic conditions in China and the US, and activity going from strength to strength in many developing countries.
“Differentiated economic activity between countries will provide good opportunities for bond and currency managers,” said Divyesh Hindocha, global director of consulting in Mercer’s Investments business. “The corporate sector is awash with liquidity and, while this may not get spent immediately, it provides a solid foundation for any recovery.”
“Some companies will prosper in this environment by making the right decisions and others will struggle, making for a fertile environment for active management.”
Mercer is recommending that clients adopt a six-point investment strategy, as follows: