Thursday, 5 January 2012

Europe's fate will move the markets

It's a safe bet that Europe will continue to dominate the economic landscape in early 2012. The news of the ECB lending package should bode well for both its banks and countries weighed down by sovereign debt. This combined with pleasantly robust economic data from the US means that this could be the start of a stuttering recovery.

So where will we be at the end of 2012? The trite answer is “who knows?” There are a lot of ifs and buts ahead. For instance, if the EU can come up with a sensible resolution; if the Democrats and Republicans start acting in America’s interest; and if the IMF and central banks ensure credit remains available and the global financial system does not grind to a halt, things could look far better at the end of 2012 than they do now.
"Our FTSE 100 year-end target is 5,850, to which should be added a dividend yield of 4 per cent."
Against this background, we think global equities should be fairly well supported. Companies with strong balance sheets and robust dividend policies as part of a well diversified portfolio should deliver reasonable returns. Our FTSE 100 year-end target is 5,850, to which should be added a dividend yield of 4 per cent. The S&P 500 has been one of the better performing areas over the last year, and I would think it not unreasonable to expect a similar kind of return over the next year, giving us a forecast of around 1,350. Property seems unlikely to make much progress and interest rate policy is likely to remain extremely loose – this is certainly the message being sent out by bond markets. Finally, if our prognosis is correct and some of the traumas of 2011 begin to ease over 2012, the demand for gold may begin to abate and we could see its price come back to nearer $1,250 than it is currently.

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