Equity Market Views: February 2012 - OCBC Wealth Management

European debt woes remain a threat to market

2 February 2012

Equity markets got off to a positive start in the New Year as the ‘January Effect’ kicked in, with improving U.S. economic data and the possibility of a new round of Quantitative Easing helping to lift markets.

Despite the recent exuberance, the Euro-zone’s debt situation continues to pose a major threat to global growth. In fact, the IMF, in its latest World Economic Outlook Update report published in January, cut its projections for global growth, highlighting the Euro-zone’s economic woes as a key reason. The Fund is also expecting the Euro-zone to enter a mild recession this year due to the rise in sovereign yields, effects of bank deleveraging on the real economy, and the impact of additional fiscal consolidation.

In China, although growth appears to be losing steam for now, we believe a hard-landing scenario is unlikely to occur anytime soon. Worries about China’s economic slowdown impacting global growth, at this point, seem overdone. Despite global uncertainties, we remain positive about equities in the medium term, favouring Asia ex-Japan and Emerging Markets in particular, as valuations are inexpensive and liquidity remains abundant.

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