Defensive investment strategies will be crucial in the coming months as advisers reach investment crossroads, according to Deutsche Asset Management chief investment officer Andrew Fay.
Speaking at an adviser briefing this morning Fay says advisers need to make the right calls as to the nature of markets and investments or risk getting burnt with their clients.
The reason for the concern is that the economic conditions of last year sent mixed signals, according to Fay, with the major indices peaking in March but defensive strategies resulted in the best performances by the end of the calendar year.
Fay says the Australian and US economies were in a downward slide which was evidenced by profit warnings and tightening interest rates and are due for a landing, but this should not be hard given the evidence available.
“The last hard landing was in 1980 and that was accompanied by lay offs and an overall pessimism due to generally low conditions across the whole economy,” Fay says.
“At present we have some restructuring already occurring, returns are not as low and it is not across the whole picture.”
According to Fay household net worth and personal savings had begun to slip in the US and there was slower growth. He says this does not point to a recession even though employment growth is lower than the last recession of 1994 -1995.
At the same time, Fay says federal banks across the globe have the capacity to keep economies from a hard landing and can move to keep up consumer confidence.
“This was evident in the chair of the US Federal Reserve Alan Greenspan agreeing that the US Government plan of US$1.6 trillion in tax cuts was a beneficial move,” Fay says.
Deutsche also predicts that the US economy would continue to experience a drop in growth, after two consecutive quarters already, down to two per cent in 2001 after five per cent last year.
However the economies of Japan, Europe and the UK would not have such severe downturns and could be used as safe havens, but Fay says investors and planners should become used to seeing single figure returns.
