Looking Forward To 2012

Elio E?Silva Consultant and Reuven Coenen Branch Head both at Alexander Forbes

Charl Barnardo Executive at BMW Financial Services and Marinda Shekleton New Business Consultant at Investment Solutions

Charles Pitt, Executive Consultant, Alexander Forbes

Richard de Chastelain, Country Divisional Head, Bayer Healthcare Pharmaceuticals

Tracey Want, Client Services Executive; Joe Monnatlala, Client Services Consultant; Kwaku Koranteng, Account Manager all from Investment Solutions and Tshepo Modiba, Senior Investment Manager from Cannon Asset Managers

Chris Hart, Chief Strategist at Investment Solutions and David Andrew, Business Editor at e-tv

Chris Hart, Chief Strategist at Investment Solutions

Lindokuhle Xulu, financial journalist at Financial Mail poses a question

Lucille Sikhosana and Vulani Mampane, investment consultants at Absa Wealth

Vuyani Jones Senior Investment Specialist at ABSA Wealth and Muitheri Wahome Head: Technical Solutions at Investment Solutions

Joe Monnatlala, Client Services Consultant; Faye Blakeney, Account Manager; Lebeko Mphelo, Research Assistant ; Tracey Want, Client Services Executive and Donovan McKay Senior Manager: Technical Solutions all from Investment Solutions.

When the year comes to a close, it is a time of reflection and also hope for the next year. The next year mostly offers a fresh start. But the fortunes of 2012 will be inextricably linked to the burdens of 2011. The year started out with a great deal of promise, as the 2010 economic recovery was expected to gain momentum.

January 2011 was probably the high point. The global economy started to lose momentum and the earthquake/tsunami that hit Japan also had a negative economic impact. In the second quarter, the debt market mood shifted against Greece when it became apparent the government was not meeting its bailout targets and outright default was regarded as the most likely outcome. Markets soured across the Eurozone, with Italian and Spanish debt starting to trade at distressed levels. The European Central Bank (ECB) moved to stabilize both the Spanish and Italian debt markets through the purchase of the respective government bonds. The monetization of Italian and Spanish government debt by the ECB has been controversial, as this is highly inflationary and opposed by the Germans. The European debt problems look set to continue dominating the economic and financial market landscape in 2012. There do not appear to be any solutions but rather strategies just to postpone the day of reckoning. Even the latest Greek bailout and managed default with its 50% haircut still has an endgame of tears. However, for now Greece is probably already discounted in financial markets. 2012 will see the focus shift onto Italy and Spain, as the debt position deteriorates. The US, UK and France will also not escape scrutiny from increasingly unsustainable debt loads and budget deficits.

The global economy will struggle for growth in 2012. Central Banks are either considering or are starting to implement another round of stimulus measures. The ECB under the new stewardship of Draghi has begun to reverse earlier rate hikes; the US FED is considering another round of Quantitative Easing (QE) while the Bank of England has already extended their QE program. The Swiss National Bank has also entered the fray through pegging the franc to the euro. The Central banks of emerging markets such as Brazil and China, which have been tightening in 2010 and 2011 are now in the process of reversing course. 2012 looks set to be ushered in against a backdrop of generalised easing of monetary policy by Central Banks.

Sluggish and stagnant economic growth has been the main catalyst for Central Banks opening up the monetary taps. The lack of traction in economic recovery following the 2008 global financial crisis has created an unemployment crisis and a widening wealth gap in its wake. This is politically and socially highly problematic. Hence the focus of policy efforts on economic growth. However, global inflation has been uncomfortably high. There is an increasing sense that official inflation figures are understating the levels of inflation. In the US, for example, the official inflation rate of 3.9% for September 2011 would stand at over 10% if various statistical overlays introduced relatively recently were removed. Global food inflation has risen substantially and has caused political problems in countries as diverse as China, India and also North Africa.

This then poses the 2012 policy dilemma. The focus on economic growth means pursuing expansionary monetary policies, which are inflationary at a time where inflation is elevated and still rising. This will stretch further in 2012. The race to debase will most likely also intensify as countries look to weak currency solutions in order to stimulate growth through exports.

2012 will also be the test of the resilience of Chinese growth. Property there is probably in a bubble and it is possible that this starts to unwind in 2012 with a negative implication for economic growth.

For South Africa, the focus on unemployment and growth will probably see interest rates unchanged for 2012 even if inflation spikes higher due to the recent weakness in the rand. The unfolding debt crisis in the developed world will generate volatility in the local financial markets. However, investment flows will ultimately be driven by yield, growth and solvency where South Africa is well placed to benefit.

Investment Solutions hosted an economic outlook breakfast on November 8 at the The Hyatt Regency Johannesburg in Rosebank. Presented by Chris Hart, a commentator of economic trends and global markets, the event was attended by financial media, financial experts, investment consultants and investors within the retirement industry.