At a recent investing conference in London, I had the opportunity to speak to Roger Bootle—one of The City’s best known economists, with a long resumé of high profile positions including Chief Economist at HSBC and a member of former Chancellor Kenneth Clarke’s panel of economic forecasters known as the “Wise Men”. Bootle is currently Managing Director of Capital Economics and a Specialist Adviser to the UK Treasury. So who better than Bootle to quiz about the outlook for investors in austerity Britain, debt-riddled Europe and diverging developed and developing markets?
In a nutshell, and true to form, Bootle’s response to my question about the outlook for the developed economies was “pretty grim, actually.” Given the weakness of the consumer in the US and Europe, a strong revival would need to be fuelled by exports, but this requires economies in the emerging markets to first expand domestic demand and adjust their exchange rates. Closer to home, Bootle believes the eurozone is in “fundamental crisis” and that not only could one or two peripheral countries default on their debt but we could also see a couple of departures from the single currency club.
And the possibility of continued turmoil in the eurozone isn’t the only risk that Bootle sees investors facing. Deflation? A live risk. Gold? Potentially very risky.
So what are the main items that investors need to be aware of going forward? “Investors need to protect themselves against a very long period of very low returns–cash and bond instruments will give very little. That also of course means that those investors who are trying to construct a portfolio to fund retirement and thinking about annuities have to be really very worried about that.”
But Bootle’s not all doom and gloom. While bond yields look set to remain at very low levels, for the long-term investor Bootle believes equities are reasonably valued in Europe and particularly in the UK. While the short-term outlook is highly uncertain, a longer-term approach should deliver reasonable returns from the world of equities.
Watch the full interview on Morningstar.co.uk. http://www.morningstar.co.uk/uk/news/article.aspx?lang=en-GB&articleid=93403&categoryid=658