Hard to imagine with financial markets still buoyant and newspapers full of tales of bonus greed, but there is still the possibility that captialism will end. At least there is according to prestigious investment consultants Watson Wyatt in their latest study called "Extreme Risks".
Five things to think about this week:
– The MSCI world stocks index has rebounded 37 percent since March, the VIX fear gauge has hit its lowest level since September 2008, and positive earnings surprises in Europe are marginally outstripping negative ones. But there are serious questions over the equity market’s ability to sustain its rise.
“This is a once in a lifetime opportunity. But you have to pick the winners. You have to separate the diamonds from the tatt,” said Giles Worthington, head of European equities at investment fund M&G Investments.
This is more easily said than done, as many companies looking rock-bottom cheap may appear so just because they are on the verge of bankruptcy. And the bottom of the current downward cycle is not yet in sight.
“It’s not just because we had a year of correction that the next year will be positive,” said Ariel Sergio Goekmen, an economist and a director at Credit Suisse’s head office who looks after wealthy families’ investments. “The recession could be deeper than one expects. We have not yet seen the darkest side of the night.”
Another month and another Reuters asset allocation poll. This time saw investors in United States, Europe and Japan lifting their equity holdings and cutting back slightly on bonds. Fits with what has been happening on global financial markets, where MSCI’s main world stock index is heading for its best month in at least six years.