Tuesday, 24 January 2012

Happy New Year 2012 and Welcome to My Blog!

Happy New Year! And welcome to my blog. As a new feature in conjunction with WhatsNewJakarta, I’ll be regularly posting articles relating to financial matters around the world, and will also use it as a forum to answer any questions that you’ve got on the subject of finance – my contact details are at the bottom of this post.

So what are the big financial stories for 2012, and what should you be doing about them? Well, I don’t have a crystal ball (unfortunately), but there are plenty of things that we all should be expecting, and even more that we should be prepared for if they occur.

One of the biggest stories in 2011 was the Eurozone – and that’s not likely to disappear from the headlines anytime soon. Basically, it’s more messed up than an evening out in Taman Lawang, and there’s not a lot pointing to any real change in the situation any time soon. So will the Euro survive? Almost certainly. Will it survive in its current form? Almost certainly not. Something has to give – either weaker countries leaving, or stronger countries leaving, or France and/or Germany performing a major macroeconomic policy U-turn. There’s one thing we can be sure of though – many more months of uncertainty. Good times.

So what of world stock markets? I think there are a few pointers for what we can expect here in 2012. Firstly, it’s worth noting that almost everybody commenting on this topic is preaching doom and gloom. Recession is looming, credit is tightening, consumers are struggling. Does this mean that markets will fall in 2012? Many are saying so. But to me this defies logic – presumably all those who think that markets will fall have already sold out.

There’s plenty of evidence that this has already happened – government bond prices are at ridiculously high prices, leaving their yields ridiculously low – recently Germany issued bonds with a negative yield. This means that investors were prepared to PAY to lend to the German government – they knew that they would get back less than they invested, but felt that they simply had no other “safe haven” to deposit their cash. This is clearly unsustainable, and as soon as a positive trigger event occurs, there’ll be a tidal wave of capital investment into the world’s stock markets. But which ones?

Personally, I think that most markets will benefit, but the biggest impact will be seen in the “emerging” ones. They were the first ones to suffer when investors panic-sold their shares, and it’s only a matter of time before global investors realise that these economies aren’t THAT much riskier than the “developed” economies of the US, UK, Europe & Japan – which have turned out to be less “safe” than everyone thought.

So should we all be putting all our money in emerging market stocks then? Unfortunately, it’s not that simple. If there’s one thing that investors should have learned in the last few years, it’s that the most important thing to do is ensure that your assets are thoroughly diversified (unless you particularly relish the feeling of your total net worth jumping around like an Australian tourist who’s just discovered Bintang).

Whatever your objectives, whatever your timeframe, whatever you attitude to risk – you should always diversify. Don’t put all your eggs in one basket!

So what are the potential pitfalls in 2012? Pick a card, any card… there could be a few. We haven’t had a year without a major natural disaster for quite some time, so it would be naïve not to expect one to strike somewhere in the world this year.

The end of the world has been predicted for 21st December – I’m going to go out on a limb and say that’s not going to happen. (If it does, you’re welcome to sue me on the 22nd).

America has been vigorously denying that it wants to go to war with Iran, and it is election year, so America will probably go to war with Iran. (Expect a spike in oil prices somewhere around August or September this year). I very much doubt it’ll be a drawn out affair – the American people seem to have no appetite for that – but a brief Falkland-style operation to wipe out half its armed forces and blow up a couple of reactors wouldn’t be a surprise to many.

It’s also election time in France, China and Russia (I use the term loosely in the case of China and sarcastically in the case of Russia). With much to play for, the focus will be on short-term rhetoric rather than long-term policy. Whilst this may not have a direct impact on global economics, any stupid decisions may severely knock investor confidence, and destabilise the recovery.

So there you have it. A few predictions for the year ahead, which I think will be a good one, financially. Clearly I’ve not covered every topic, or gone into too much detail – that’s for the weeks ahead. This is where you come in – what would you like me to talk about? Whether you’ve got questions to ask, topics of interest, or thoughts to add, please let me know and I’ll work them in to future posts – you can email me at jake.wallis@imperium-capital.biz.

Thanks for reading all the way to the end – and have a great 2012!

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