CHRISTMAS tends to be the season of goodwill and investor optimism. A poll of fund managers by Bank of America Merrill Lynch (BAML) in December 2014 found that most expected stronger economic growth and low inflation in 2015. Investors were enthusiastic about equities (particularly in Europe) but negative on government bonds.
The consensus is often wrong and this was no exception. Not every bet soured, but most predictions went in the wrong direction. Global economic growth has disappointed once again, although largely thanks to a poor performance by emerging, rather than developed, economies. Forecasts have been steadily revised lower. The OECD’s latest estimate for global growth in 2015 is 2.9%, well below the average rate over the past 30 years, of 3.6%.
When it came to predicting the best-performing asset class of 2015, investors had little doubt. Two-thirds of managers picked equities and just 4% government bonds. Alas, in dollar terms, equity investors have lost money (see chart). As of December 15th the total return from shares in the developed world (in dollar terms) was -1.4%. Government-bond markets have also...Continue reading
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