Saxo – the bank, not the salt company – predicts that Western financial markets will undergo a ‘Japanization’ effect, which will result in higher price earnings ratios and lower yields on both corporate bonds and treasuries. And the reason: the need for continued monetary stimuli and the long term government deficits?

David Karsol, chief economist at Saxo Bank, said:
“Because Western economies are more flexible and able to embrace the necessary changes, we do not think that things will get as bad as was the case in Japan. However, it is increasingly evident that the current scenario in the West bears a close resemblance to post-1990 Japan, and it looks progressively like we have entered a new regime in which everyone assumes that large companies will be bailed out. This means that default risk is ‘priced out’, and we see higher price-to-earnings ratios and lower yields on fixed income.”

Saxo Bank, which is a Copenhagen-based investment specialist, goes on to predict that in the fourth quarter of 2009, the American economy will return to positive GDP growth in the second half of the year, but warns that the sustainability of this growth is questionable and will be largely due to government spending and inventory restocking. Also, US unemployment will continue to rise over the coming months, and that this will further hinder debt repayments and consumption.

And Mr Karsol believes a USD short seems to be a vote for the global recovery and has become the, newer and better carry trade. He said:
“The very low US’s yields and need for external financing and increasing reluctance from China to buy greenbacks is a toxic cocktail that could drive the currency even weaker in the near term.”

As regards the end of the year, Saxo Bank believes that market dynamics indicate a shift from this year’s equity market rally. Global equity markets rallied 59% from the March lows through to August, and looking ahead, Saxo Bank thinks that the core dynamics indicate a shift in performance towards micro trends and sector-specific growth and valuation stories.

Mr Karsol again:
“Most indicators of economic activity are stabilising, but at very depressed levels. We believe investors should continue to take cyclical risk through regional allocations, with particular emphasis on emerging markets over Europe and the US, where it will be difficult to maintain and improve growth.”

For those interested, Saxo Bank has offices in Australia, Amsterdam, Athens, France, Italy, Japan, Singapore, Spain, Switzerland, UK, and the United Arab Emirates.

Guest Article by Neil Camp

Although the credit crunch might be starting to ease and some grass roots of recovery are pushing their way above ground, recent research has shown that one in four investors are saying they won’t return to the stock market for fear of losing money.

The data comes from the Prudential, part of the Prudential Group which offers a range of financial products including life assurance, pensions, savings and investment funds.

The one in four figures equates to nearly 12 million people in the UK who now have cold feet when it comes to equity markets, mainly because they lack confidence in the stock market, or just fear that they will lose out if they do invest in stocks and shares.

This is against a very positive stock market backdrop, with the FT100 delivering a 43% surge from its low-point of 3,512.1 on March 3rd 2009, to more than 5,000 now.

The Prudential believe that the problem for those that rule out stock market investments now, are potentially missing out on long-term gains delivered by the historically strong performance of shares.

A further examination of the figures, shows that 1.9 million – around 4% of the population – have been put off investing more because of recent losses. And approximately 12% say they have no confidence in the stock market over the next 12 months. Some 8% say they have no confidence in the stock market at all.

Trevor Cheal, Retirement Savings Business Director for Prudential said: “The saying that it is not timing the markets, but time in the markets that matters could never be more apt. Investors often act irrationally and driven by fear they sit out the markets as they begin to recover, missing out on some potentially spectacular gains.”

Interestingly, the research revealed that 32% of those who do not intend investing in the stock market would be convinced to do so, if they could be guaranteed they would not lose money, while 13% say they will invest if the market shows strong signs of recovery. Another 6% claimed they would do so if they had access to expert advice on where to invest.

But the 25% who said that they rejected stock markets, categorically stated that there is nothing that could convince them to return to the stock market.

To end on a more positive note, Prudential’s Trevor Cheal, points out that direct equity investment is not the only option, saying:
“It is understandable that in volatile markets, investors may not want all their eggs in one basket and multi-asset funds which provide diversification can give them some degree of comfort while still giving the investor exposure to the stock market. Those who feel they lack the knowledge to manage a diversified portfolio should consider getting professional financial advice from a stockbroker or an IFA.”

Guest Article by Neil Camp

Far from sweating about the trials and tribulations of the stock exchange, it has been revealed that 22% of investors in stocks and shares fail to monitor the performance of their holdings.

Financial group the Prudential conducted the research which showed that over one in five people never check the progress of their stocks and shares. What’s possibly more worrying is that 65% of investors don’t seek any professional advice prior to investing in the stock market.

And figures extrapolated by the Pru found that 36% of UK adults aged over 18 (equivalent to 17.23 million people) have invested in the stock market over the past ten years. However, more than half (53%) of these investors admit they only check share performance every six months, or less frequently, with one in five (20%) saying they only review their stock performance once a year and 22% admitting they never do.

What’s more, UK adults appear to be equally apathetic with around two thirds of investors (65%) saying they rely on internet searches or media reports when selecting which shares, or investment fund to buy. And just 16% seek out an independent financial adviser, with 4% consulting a stockbroker and 10% gaining advice from bank, or building society staff.

Interestingly though state the Pru, whilst many stock market investors seem far to casual about their investments, they are at least exposing themselves to an asset class which has historically shown some of the strongest growth. This sits in stark contrast to the rest of the population with around 30 million UK adults (64%) having made no stock market-based investments in the past ten years.

Trevor Cheal, Retirement Savings Business Director, Prudential said: “While not everyone is fortunate enough to have spare funds to save or invest, many people do and it is staggering how few are seeking financial advice or looking to capitalise on the growth potential that the stock market has historically offered.

“Those who invest in the stock market have taken the first important step towards benefiting from the long-term growth of the economy, but they stand a greater chance of maximising its value if they re-evaluate their investment arrangements regularly. However, in volatile markets, investors may not want all their eggs in one basket and multi-asset funds which provide diversification can give them some degree of comfort while still having exposure to the stock market. Those who feel they lack the knowledge to manage a diversified portfolio should consider getting professional financial advice from a stockbroker or an IFA.”

So the message is clear, if you do own stocks and shares, just check occasionally that the company is still around.

Guest Article by Neil Camp