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The positive news for 2010 is that the world will emerge from recession. However, affluent parts of the world are still hampered by debt and high unemployment, therefore much work is required for a return to previous levels. Governments must decide carefully when to withdraw the economic support they provided to keep the system afloat following the collapse.

Stocks

Credit Suisse The Credit Suisse Group (SWX:CSGN, NYSE: CS) is a financial services company, headquartered in Zürich, Switzerland. It is the second-largest Swiss bank, behind UBS AG.
….. Click the link for more information. suggests that investors focus on American and European quality large cap equities, with exposure to emerging markets, as a core holding. For those willing to take slightly more risk, direct investments in emerging markets are expected to perform well. Following the Copenhagen Climate Change Summit and with oil prices likely to increase, they believe alternative energy will be a big area to consider. CS will also focus on cyclical stocks, such as IT and some consumer discretionary stocks, as well as selected small- and medium-cap stocks together with Value stocks Value stocks

Stocks with low price/book ratios or price/earnings ratios. Historically, value stocks have enjoyed higher average returns than growth stocks (stocks with high price/book or P/E ratios) in a variety of countries. .

Eurozone n → eurozona, zona euro

Eurozone n → zona euro and emerging market equities, and has a positive outlook on the Energy, Materials and Information Technology sectors. It also believes that removal of policy support is a risk to equities and will dictate the preference for cyclical or defensive tilts during the year.

Fixed income

Credit Suisse believes that anyone considering the fixed-income sector should avoid focussing on best-quality (triple A) credits or on longer durations; choosing lower levels–such as single A’s, double B’s and triple B’s–keeping maturity short- and medium-dated.

They expect reasonable rather than big returns in this sector.

UBS sees potential risk in government bonds and favours corporate bonds. They suggest that cautious investors should shift some of their government bond exposure to investment grade corporate bonds with medium-term durations. Investors with greater risk-tolerance should consider high-yield corporate bonds.

Commodities

Credit Suisse is certainly positive on industrial metals, such as copper; as well as on oil and platinum–predicting reasonable returns on all of them in 2010. Gold prices are quite likely to go significantly further; however, CS sees this as rather a difficult market for investors, with potential for prices to rise to unsustainable levels. Obviously it would be fine if investors could take advantage of increases, but the bank thinks there is a risk of substantial reversals.

UBS believes the clear trends which dominated currency markets in 2009–for example, US dollar weakness and the search for higher-yielding currencies–are unlikely to exert as much influence during 2010. It expects the US dollar to remain weak, with emerging-market and commodity-producer currencies stabilising at even stronger levels than those of 2009.

UBS also predicts that the first half of 2010 will see crude oil prices move higher, with global demand likely to increase by almost 2%. This should allow inventories to normalise Verb 1. normalise – become normal or return to its normal state; “Let us hope that relations with this country will normalize soon”
normalize

change – undergo a change; become different in essence; losing one’s or its original nature; “She changed completely further, restoring the focus on structural supply issues. The bank’s bullish crude oil forecast does not contradict their view on natural gas: They feel that ample supply, inventories at storage limits, and high investment costs Those program costs required beyond the development phase to introduce into operational use a new capability; to procure initial, additional, or replacement equipment for operational forces; or to provide for major modifications of an existing capability. make natural gas unattractive. Coal prices –which also underperformed crude oil–should catch up, underpinned by strong demand, especially from India and China.

Regions

UBS expects to see continued strong growth-opportunities in emerging markets, although performance may be uneven due to the under-developed state of financial markets in these regions. Nevertheless, expect well-targeted emerging-market investments to generate attractive returns. In addition, investment in new technologies offers opportunity for above-average growth potential. 2010 is expected to be a good year for assets aimed at helping the world combat environmental challenges, such as global warming global warming, the gradual increase of the temperature of the earth’s lower atmosphere as a result of the increase in greenhouse gases since the Industrial Revolution. or limited food and clean water supplies.

Others believe emerging markets–especially India and China–will become increasingly important. Manufacturing is set to overtake farming’s significance in the Indian economy. 2010 will also see China become the most important emerging-market player, taking an active role in most global issues and overtaking Japan as the world’s second-largest economy.

North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere.

US and Canadian stimulus packages, together with falling tax revenues will push the US budget deficit to nearly USS USS
abbr.
1. United States Senate

2. United States ship

USS abbr (= United States Ship) → Namensteil von Schiffen der Kriegsmarine 2 trillion by the end of 2009. It is no secret that the US needs more economic discipline to close this gap.

Current uncertainty about the inflation outlook is as high as it has ever been since the eighties. In November’s Fed meeting, the US central bank signalled that it expected to keep rates on hold near zero for at least six more months.

2010 will see the US concentrate on getting out of recession and maintaining its recovery. Many market specialists believe unemployment may reach 12%, but predict a return to 10% by the end of 2010. Interest rates–historically the Fed waits a few years before raising rates after a recession. Many believe that they will begin to sell back the assets they bought, but most Fed officials fear such asset sales would upset markets and cause increases in long-term interest and mortgage rates. It is also clear that consumer borrowing must be reduced to balance the economy and regain consumer trust. The current trend in personal savings will benefit the US long term; although in the short term–despite stricter import conditions–it will hurt companies selling goods, such as the automobile industry automobile industry, the business of producing and selling self-powered vehicles, including passenger cars, trucks, farm equipment, and other commercial vehicles. .

Precious metals

UBS favours platinum over gold and cautions investors against expecting too much from precious metals, which performed solidly in 2009. They advise avoiding silver, as supply is set to increase. Platinum’s lower exposure to financial demand, together with its adaptability to industrial activity makes it advantageous over gold.

Gold

Credit Suisse believes that gold prices may rise to US$1,200 by the end of the second quarter of 2010. Strong monetary demand, coupled with a muted supply outlook should support gold prices well over the next few months. However, other specialists believe the recent rise in gold prices only to be partially justified by fundamentals, and in part a bubble that could easily go bust.

Foreign Exchange

Credit Suisse believes the EUR/USD exchange rate could approach 1.70 within 12 months, but warn that a major credit event is the biggest risk to their bearish dollar view and could trigger significant correction. The Pound’s cyclically driven recovery is creating opportunities to sell and CS favours using sterling as a funding currency in 2010. The Japanese yen is among the most attractive currencies for 2010 and CS has revised its Yen forecasts–believing the USD/JPY could test 80 in 2010. They are bullish on the AUD/NZD and expect the Swiss franc Noun 1. Swiss franc – the basic unit of money in Switzerland
franc – the basic monetary unit in many countries; equal to 100 centimes

centime – a fractional monetary unit of several countries: France and Algeria and Belgium and Burkina Faso and Burundi and EUR/CHF floor to be lowered through 2010. The Singapore dollar is expected to appreciate on trend, reflecting the general theme of Asian currency appreciation. Within emerging markets the Mexican peso is favoured.

To summarise, CS’s currency strategy for 2010 maintains a core dollar-bearish bias, but also seeks to reflect a new balance of risks presented. From a major currency portfolio perspective, they continue to favour the Euro, Swiss franc, Japanese yen, Australian dollar, and Singapore dollar. But, after strong rallies in 2009, they also favour selling Sterling and New Zealand New Zealand (zē`lənd), island country (2005 est. pop. 4,035,000), 104,454 sq mi (270,534 sq km), in the S Pacific Ocean, over 1,000 mi (1,600 km) SE of Australia. The capital is Wellington; the largest city and leading port is Auckland. dollars, in addition to their core position of selling US dollars. They remain strategically neutral on the Canadian dollar Noun 1. Canadian dollar – the basic unit of money in Canada; “the Canadian dollar has the image of loon on one side of the coin”
loonie

Dollar – the basic monetary unit in many countries; equal to 100 cents , although it may outperform in the medium term.

World Economic Forum

The 2010 motto for the World Economic Forum is Rethink.

Redesign and Rebuild. It will be interesting to see how they propose to implement the findings of their International Monetary Convention Project, which seeks to provide input to the deliberations of policy-makers by convening them for off-the-record sessions with some of the world’s leading private sector and academic authorities. A final publication to be issued in Davos in January 2010 will include a summary of key findings from the roundtable series as well as a selection of research papers prepared for the project.

There are still many threats facing a short-term recovery. We know unemployment and tax are rising and public spending is falling. Government stimulus will cease at some point and if you look back in history, we see mainly “double-dip” recessions often caused by governments making policy errors–for example by withdrawing stimulus too soon. Interest rates will slowly rise and global lenders will require greater premiums to cover the risk of non-payment. However to finish on a more positive note, in 2010 many companies can at last consider growth rather than survival strategies.

However, in the UK, one financial professionals outlook is a bit more dim:

Get ready for the austerity decade. Forget all thoughts that the economic storm of the past 30 months is about to blow over. We’ve had what Mervyn King once called the NICE period of non-inflationary constant expansion but now we face a long DRAG – deficit reduction, anaemic growth. The lessons of economic history, the current configuration of the economy, and inescapable long-term challenges that have to be faced provide the same message: it’s payback time.

Let’s start with a trip down memory lane. The post-war era has been characterised by three distinct phases in the global economy. There was a 25-year boom that ended with the quadrupling of oil prices in the autumn of 1973 during the Arab-Israeli war. There was another long boom – very different in its shape and in the division of the spoils – that also lasted for a quarter of a century, between 1982 and 2007. In the middle, there was a nine-year period in which policymakers grappled with stagnating growth and rising inflation.

It’s tempting to treat the current crisis as simply another of the mini-problems that punctuated the 1982-2007 upswing, but this is different from the stock market crash of 1987, the US savings and loans debacle of the 80s, the mild recession of the early 90s or any of the crashes in emerging markets during the 90s. All the previous crises could be alleviated by cheap money policies to create a bit more debt or shrugged off as peripheral events. This crisis is different; it has gone to the heart of the global economy, it has left the financial sector in a zombie-like state, and it has caused the same sort of existential crisis for the Chicago school of economists as stagflation caused for Keynesians in the 70s.

The profound nature of the shock means that the adjustment period will be just as long as it was in the 70s and early 80s, when the occasional flash of blue sky was quickly blotted out by a new thundercloud. In the 70s, it took a long time for policymakers to understand that the old levers were no longer working, and the same applies now. The response to the crisis has been unprecedented, and thankfully has helped prevent a deep recession from turning into something much worse. There is some comfort to be drawn from the V-shaped recovery enjoyed by China and some of the other Asian economies, which suggests a decoupling between the developed economies of Europe and North America and the fast-growing emerging world. But not much. The sobering fact is that the structural weaknesses that caused the crisis – the imbalances between creditor and debtor nations, an over-reliance on debt, a financial sector that has lost sight of its real purpose – remain untackled. We are – as King noted last week when calling for reform of the banks that would prevent retail banks on the high street speculating with their customers’ money – living in a fool’s paradise.

Turn now to the immediate outlook. Financial markets have been wobbling since the turn of the year, fearful that the pick-up in activity from the spring of 2009 was merely a prolonged dead-cat bounce. There is plenty for the bears to be worried about. The strength of the recovery in the United States is flattered by businesses rebuilding stocks run down during the early, savage months of the downturn. The housing market is weak and will remain so until unemployment starts to come down. Officially, the US has a jobless rate of 10% but it is much higher once the number of part-time workers who would prefer to work full time is taken into account. Unsurprisingly, consumer confidence is low.

Europe is already into the second phase of a double-dip recession. The economic convergence that the single currency was designed to bring about has happened: unfortunately the fast-growing countries on the fringe have been dragged down to the slow pace of those at the core rather than vice versa.

As for the UK, don’t be misled by the upward revision to growth in the final three months of 2009. Downward revisions to previous quarters of last year mean that the peak to trough fall in output was even bigger than previously thought at 6.2%, while the boost to activity between October and December was partly the result of strong government spending and partly the result of consumers bringing forward spending to beat the return of VAT to 17.5%. There is a real possibility – looking at the latest official data for high-street spending and for unemployment – of a relapse in the first quarter of 2010. King and many of his fellow members of the Bank of England’s monetary policy committee certainly think so, judging by recent comments.

But never fear. We are told, endlessly, that Britain is well-placed to take advantage of the recovery in the global economy. The depreciation in sterling means that the focus of growth will be switched from domestic demand to exports. This would be funny if it were not so serious. Here’s the reality. More than half of Britain’s visible exports go to a part of the world – Europe – that is barely growing. Less than 5% go to the big emerging markets of China, India and Brazil. UK exporters have certainly been helped by the drop in the value of the pound, but have responded by fattening their profit margins rather than by selling more goods. The extra cash flow is keeping them in business but not prompting additional spending on new kit. Last week’s investment figures were truly horrific, with capital expenditure in manufacturing down by more than a third between the fourth quarter of 2008 and the same period of 2009.

The lack of investment will show up in Britain’s trend rate of growth – the rate at which the economy can expand without inflationary pressures surfacing. In the pre-crisis period, the Bank and the Treasury thought the trend rate of growth was about 2.5%-2.75%, but the recession has left deep scars. Capital has been scrapped and is not being replaced. The trend rate of expansion will have fallen at a time when there is a need to reduce the mountain of public debt. That will make the deficit cutting process even longer and even tougher.

All this comes at a time when pressures on public spending are bound to intensify as a result of higher medical and long-term care costs of an ageing population, and the need to “brain-up” the workforce. Andrew Dilnot, principal of St Hugh’s college Oxford and former director of the Institute for Fiscal Studies, says the greying of the baby boomer generation and extra NHS/care costs will add one percentage point per decade to the structural budget deficit.

So while the fragility of the economy means it would be unwise to start tightening fiscal policy immediately, an eventual squeeze is inescapable. Apart from anything else, the interest payments on the national debt are rising fast, and every pound spent paying off the UK’s creditors is a pound unavailable for schools, hospitals and care homes.

As a result, the next decade will be marked by higher taxes and restraint on public spending. Consumer demand and government investment will grow far more slowly than in the boom years. Eventually, resources will be diverted into investment and exports. But this is a sick economy, and it will take a long, long time.