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from Expert Zone:
Season to be jolly? With 2012 outlook, unlikely
(The views expressed in this column are the author's own and do not represent those of Reuters)
It is the season to be jolly and it is also the season for ‘outlook’ views on what the New Year will bring, and that is unlikely to make anyone jolly. There are many possible binary outcomes in 2012 that could move markets and commodities erratically, so the only certainty appears to be ongoing volatile price swings.
Continuing European angst and the reality of hardship and deleveraging are the most likely outcomes in 2012. A slowing China will also likely push commodity prices lower in the first half of the year. Global demand conditions are likely to get worse before they get better -- and ‘the getting better’ is still dependent on government policy responses. The markets hoped for policy support sooner but this time the quick stimulus fixes of 2008-09 are not an option in 2012.
China’s outlook in 2012 will be dominated by its two engines of growth -- property and exports. On both accounts we see tougher times. With Europe taking 17 pct of China’s exports and expected to see its GDP contract 0.7 pct in 2012, China’s export growth at best will be flat. In property, the key private commodity housing market is likely to see starts fall more than 10 pct, as property prices fall and credit on small developers remains tight. Both events will dampen demand throughout China and into the global commodity system. For instance, we estimate that the Chinese private commodity housing market consumed around 29 pct of all of China’s steel, nearly 15 pct of global steel and consequently a weakening commodity housing market in China is significant for global outcomes.
We do see some overall relief in Chinese property and related commodity consumption with the further acceleration of social housing. We expect that inevitable government stimulus, given a slowing economy, will be expressed in funding directed to social housing. We expect a reactivation of the reported stalled social housing starts of 2011, that could be as high as a third of the 10 million reported starts, and 8 million new starts in social housing will sustain overall commodity consumption in 2012. This could see social housing steel consumption share rise from to near 6 pct of total Chinese steel consumption in 2012. The risks lie in whether the central government can mobilise sufficient financing and local government incentives to deliver more ‘real action’ in social housing construction.
Weaker export performance in China in 2012 will also subtract 1.4 ppt from GDP growth, leaving China with 8 pct growth in 2012, substantially down from 9.2 pct expected in 2011. But there are real risks to this forecast. The continuing European crisis could see our estimate of a 0.7 pct GDP decline appear optimistic; a deepening of the deleveraging in Europe could see China 2012 exports actually fall by more than 10 pct. Recent UBS banking analysis suggests that the European deleveraging process could last over three years where assets may contract by more than 10 pct and total outstanding loans could fall by nearly 1.5 trillion euros. Consequently we see China’s growth slowing to c7-8 pct over the next few years.
Government policy remains a key to 2012 outcomes. We expect further fine-tuning of China’s macro policies that turned into a formal monetary easing when the PBC announced the 50bpts reserve requirement rate cut. We expect there will be more RRR cuts to allow more lending but we expect interest rates will be kept unchanged. Total social financing is expected to grow by Rmb12 trillion in 2012, including a lift of Rmb8 trillion in loans, up 14 pct y/y. We expect a modest 2-3 pct of GDP in economic stimulus in 2012 supported by a larger fiscal deficit and higher credit quota biased toward social housing and other ‘livelihood’ investments. We do not expect any real change in commodity property policy, however, as conditions slow in 2012 there will be pressure for ‘fine-turning’.
from Global Investing:
Deutsche’s investment themes for 2012
We just finished our three-day Reuters 2012 Global Investment Outlook summit in London, New York and Hong Kong, where prominent money managers have discussed their outlook for next year. (For more click here)
Deutsche Bank Private Wealth Management (whose official was also a guest at the summit) is telling its clients the following 10 investment themes for next year.
1. Safe may not be safe Don’t react to uncertainty by automatically taking refuge in traditional safe havens such as cash, sovereign bonds, real estate or precious metals as they may prove less safe than they appear.
2. Walk before you run Build up holdings gradually, first focusing on “equity lite” type holdings
3. Ready, steady... go? When we get some clarity on euro zone resolution, not only equities and bond markets will start to have a different momentum.
4. Be nimble, but with a safety net Consider resorting to regular, dynamic portfolio rebalancing to adjust to economicand market developments.
5. Reason should dominate emotion Avoid an emotion-driven response that is likely to result in wrong investment decisions, andwrong timing, and make sure that reason always dominates the decision-making process.
