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How long will the cyclical upturn last?
Author: Henk Luijten
Henk Luijten joined ING Investment Management (ING IM) in July 2000. As one of the financial editors of Investment Content Management (division of Marketing & Communications), he is responsible for the written communication of ING IM’s investment views and expertise to client servicing departments, ING Private Banking and to various client groups directly. He does so by writing a wide range of publications. Prior to joining ING IM, Henk worked as an editor and an investment analyst for MeesPierson and as a credit analyst for ABN Amro. Henk holds a Master degree (Law, Amsterdam, 1980) and a Bachelor degree (economics, Hogeschool Limburg, 1972).
We are at the beginning of a cyclical upturn. The crucial question is of course how long it will last. The answer depends on the nature of the shocks that will hit the system as well as its size. One of the possible shocks? A Greek exit.
We forecast a self-sustaining, but moderate upturn in global growth. A crucial question is of course how long the upturn will last. The answer depends on the nature of the shocks that will hit the system as well as their size. Some of these shocks we don’t even know (such as last year’s Japan earthquake). There is little use of discussing these “unknown unknowns”. Also, there are the known risks. The most prominent one remains the euro crisis.
Global activity establishes uptrend again
Source: Thomson Datastream, ING IM (July 1998 - February 2012)
Investors have been in a risk on mode since the turn of the year. The explanation of this change in risk attitude is threefold.
1. Markets are flushed with liquidity. Central banks in mature economies have all expanded their balance sheets through quantitative easing (Fed, BoE), liquidity programs for banks (ECB), asset purchases (Bank of Japan) or interventions in the currency markets (Swiss central bank).
2. An improvement in the macro economic outlook. This has a positive impact on our earnings forecasts. For 2012, we now only expect a moderate downturn in European earnings (between 0 and -5%) and even a small positive in earnings for US companies (between 0 and +5%).
3. Institutional investor flows are only just turning more favourable towards equities. Historically it took at least 6 months for institutional investors to restore their positions after similar long risk-aversion periods.
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Senior Investment Specialist Ad van Tiggelen about Asset Allocation in October.