2013: Searching for a soft landing
DESPITE EUROPE’S debt crisis, and a looming fiscal cliff in the US, there is some upside for stocks – as long as policymakers make the right decisions.
Last month a 1954 abstract painting by Mark Rothko sold for US$75 million at Sotheby’s in New York. It was way above the estimate of US$35 million to US$50 million, and helped Sotheby’s record the biggest auction in the firm’s 268-year history. The auctioneer took US$375 million in a single evening.
Back in Australia, the hefty price fetched by Rothko’s No 1 (Royal Red and Blue) caught the attention of Hugh Giddy, senior portfolio manager at Investors Mutual. For the Sydney fund manager, it’s a sign that investors are too optimistic about the global economy and are putting too much faith in the ability of policymakers to avoid disasters.
Giddy evokes former US Federal Reserve chairman Alan Greenspan’s ‘‘irrational exuberance’’ speech with the remark, ‘‘we’re still partying like it’s 1999’’.
At best, Giddy believes global economic growth will be sluggish in 2013. At worst, he fears it could return to the bad old days of the financial crisis, when credit markets froze over and equity prices plunged.
‘‘The underbelly of the global economy is extremely weak,’’ he said, arguing that by keeping monetary policy so loose, policymakers in Europe and the United States are putting BandAids on their economies rather than solving structural problems.
‘‘Investors seem to be giving the authorities the benefit of the doubt,’’ Giddy said. The huge debt piles that characterise many governments and households in developed countries meant the world had a ‘‘tail risk of Great Depression-like proportions’’.
Giddy has low expectations for the sharemarket next year. ‘‘I can’t see us going off to the races.’’
This year, however, has been kind to equity markets. The S&P/ ASX 200 is up 12 per cent since January. In the 11 months to November, international shares rose 11.5 per cent.
Other investment experts discussing their 2013 predictions with The Australian Financial Review are less pessimistic.
Russ Koesterich, chief investment strategist for BlackRock, the world’s largest fund manager, agrees that Europe and the US have yet to solve their structural problems but he has more faith in the ability of