As we head quickly towards Spring and, hopefully, a little warmer weather, markets have begun to concern themselves with the strength of the recovery in global economies.  There is a fair bit of good news around and the position in North America, Emerging Markets and the Far East looks very positive but Japan still remains in the doldrums and the position in parts of Europe and the UK can look quite negative.

Revised GDP data has indicated that the economy grew slightly more than originally estimated in the final quarter of 2009 which confirms that we have come out of recession.  There is no guarantee, however, that we will not see a dip back into negative growth during this year and an analysis of the growth figures indicates that the main contribution came from Government spending and reduced de-stocking.  As we know, Government spending is going to be under a great deal of pressure over the next couple of years and reduction in de-stocking is something of a one-off. With consumer spending a very large portion of our GDP and, again, the consumer likely to be hit hard in the forthcoming year, it would not be too surprising if our economy found itself in a further negative period.

What may well support the position, however, is a return to quantitative easing which has been withdrawn in part over the past couple of months and it may be that this has to return.

In summary, this is all a bit disappointing given the massive stimulus that has been injected into the economy, the very low interest rates and the huge budget deficit we now have to earn our way out of.

In Europe, it is the countries of Portugal, Ireland, Italy, Greece and Spain (known as PIIGS or “Club Med Group”) which have the largest problems but the rest of the euro zone is struggling to come to terms with the position.

In Japan, the economy remains in the doldrums and latest figures suggest private capital spending has fallen a lot.  There appears to be little to get excited about in Japan itself but the growth in the rest of the Far East, Emerging Markets and North America looks likely to make up for the shortfall referred to elsewhere.

Whilst fixed interest securities have had the best of the cycle already there will be something to be gained from being in the right mix of corporate and high yielding bonds – probably not Government debt – and a positive year is expected.  Property remains a little bit questionable and whilst a number of people have been making positive statements it remains our view that it is too early to pile back into this asset class just yet.  This leaves equities. 

Equities we believe, are very reasonably valued at this point in the cycle and, with growth expected in many parts of the world, the right companies are likely to do well.  This probably means that the country of quotation is not quite as relevant as the area in which income is being generated.  It is well known, for example, that the earnings from the top 100 companies quoted in the UK are 70% + generated overseas.  This is true of top companies in Japan and Europe as well and it appears more important right now to be picking the right companies with the right trading conditions and strong balance sheets rather than worrying too much about geographical exposure.