Resources

A W-Shaped Recovery?

Date: January 29, 2010

Ignoring the headlines in the popular press, many people in the asset management industry are worried that we may well get a W-shaped recovery, where having briefly recovered from the near-death experience of 2008, the economies of the world slide back into recession.

This might be prompted by a hike in interest rates because of a surge in inflation which would dampen the stock markets and company profits and probably result in more unemployment. Higher rates would also cause problems for those on the brink with their mortgages and that would have knock-on effects for the economy as well. If governments are going to avoid losing their ratings they will have to start making cuts in spending and that too would add pressure to the fragile recovery.

So it is hard to get excited by the prospect of a huge general recovery for the world economy when such large parts of it have got into so much debt and with
all its consequences. However, my view is that Asset Managers are going to be winners whatever happens.

Savings rates are soaring in UK and elsewhere as a natural reaction by people in tough times to horde their resources. Savings equal money to manage for Asset Managers; you just have to make the right sort of product to attract it. See-sawing stock markets will make some retail investors wary of equity investment perhaps, but for those brave enough the fresh money will end up financing the best new ideas with the best potential for returns. If the economies of the world do make a full recovery (probably thanks to China), then stock market values will rise and so attract more money.

It looks like being a good time to be an Asset Manager.