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Global Investment Outlook Straight From The Experts
In the Spotlight | 16 June 2011
By: Choo Hao Xiang
Articles (151) Profile

When Nouriel Roubini talks, the world listens. I got to experience that first-hand at the Global Investors Forum 2011. Held at Raffles City Convention Centre on 11 June, the event, put in order by OCBC Securities, drew in a massive crowd, with participants seemingly eager for the start of the talks.

This did not come up as a surprise given the rich line-up of financial masters assembled for the event. Gracing the event were reowned economist Dr. Nouriel Roubini (a professor of Economics at New York University’s Stern School of Business, and Chairman of Roubini Global Economics), Russ Koesterich (iShares Global Chief Investment Strategist, BlackRock), Dr, Michael A. Yoshikami (CEO, Founder and Chairman, YCMNET’s Investment Committee, YCMNET Advisors) and many more.

Cordially invited by NextVIEW, my colleague and I were privileged to sit in seminars packed with market watchers, thought leaders as well as newsmakers. While there were numerous presentations conveying various invaluable insights on the global investment outlook and investment tips, the keynote speech by Dr. Roubini left a deep impression on me.

What Threatens Recovery
Lauded as the man who predicted the global financial crisis, Dr. Roubini exuded a sense of caution as he vividly expressed his viewpoint on the path of the global economic recovery ahead.

Depicting a ‘perfect storm’, Dr. Roubini projected a one-in-three chance that factors such as the fiscal woe in the US, a slowdown in China, European debt restructuring and stagnation in Japan may converge to stunt growth by 2013 at the latest. Signs of fragility, clearly evident in stocks worldwide which saw a slump that wiped out more than US$3.3 trillion since the start of May, had begun to creep in, ebbing market confidence.

Elaborating further, Dr. Roubini centered the issue of rising sovereign risk on the US. “We are still running over a trillion-dollar budget deficit this year, next year, and most likely in 2013,” he said. “The risk is at some point, the bond market vigilantes are going to wake up in the US, like they did in Europe, pushing interest rates higher and crowding out the recovery.”

Moreover, he pointed out that the excess capacity in the goods, housing and labour market also poses headwinds to the US economic recovery as the de-leveraging process continues.

On a lighter note, Dr. Roubini believed that the Federal Reserve will be fixated on mopping up liquidity and the fight against inflation when inquired about the possibility of QE3. However, he remarked that should the US economy stalls, that being less-than-2% economic growth, it might be a different story.

Dr. Roubini then went on to other issues that could potentially derail the economic recovery, such as the impact of the turmoil in the Middle East on the already elevated oil prices, implications of the Japan disaster on the country’s finances and supply constraints as well as the rising inflation impeding economic activities.

Not All Is Doom
That said, there is always 2 sides to every picture. Outlining alternatives, Dr. Roubini mentioned that there could be ‘anemic but OK’ global growth or an ‘optimistic’ scenario in which the expansion improves.

In support of these upside prospects, Dr. Roubini highlighted the following 6 points:

  1. The global economic recovery is expanding, with countries’ GDP restored to pre-crisis level;
  2. Risks such as outright deflation in advanced economies, a double-dip U.S. recession and the break-up of euro-zone have lower probabilities as compared to a year ago;
  3. ‘High-grade’ corporations have regained their strong financial status, as reflected in their financial statements;
  4. The cyclical trend of the economic cycle will see a shift of geopolitical power, leading to a more ‘balanced’ global economy as emerging markets contribute a larger portion in terms of GDP;
  5. Positive feedback had been gathered pertaining to rising economic activities, reinforced by asset inflation;
  6. Population growth and more importantly productivity growth will power economic activities going forward.

Where To Invest
Wrapping up his session, Dr. Roubini was asked about his investment picks. Participants were all ears when he advocated investors to have a long-term view while taking a defensive stance for the next 2-3 months by investing in liquid assets. This would allow investors to ascertain whether the string of recent poor data out of the US was just a temporary soft patch or the start of a permanent slowdown.

As for those looking at fixed income instruments, he suggested that the credit rating of that particular country be taken into account.

Meanwhile, other top investment recommendations by speakers who comically bemoaned at their misfortune of presenting after Dr. Roubini included commodities, emerging markets and Asian currencies. Asset allocation and global diversification were also put across as pertinent aspects of the portfolio construction process.

Personally, it had been an eye-opening experience at the Global Investors Forum 2011. Not only did I gain a wider perspective on the heated issues, I believed that many participants took home an important point being that financial markets do not always fall in line with the nature of news data. It is the interpretation of the data that matters.

Haoxiang manages and oversees the portfolio of stocks in the consumer goods and hospitality sectors at Shares Investment.

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