Miles To Go And Promises To Keep, Still

With a tumultuous 2009 ending with stronger markets than at its start, there remain miles to go and promises still to keep for normality to actually be in place. At various levels from governments/ central banks to financial institutions to individual corporations and not just amongst investors, there remains a reluctance to accept that part of the solution for normality lies in not detachment but recognizing their participation in the build-up of the credit crisis. In addition to funding massive deficits, markets are likely to have to operate with differing challenges for authorities ranged from inflation and deflation as well as the efficacy of prior funding, all insidious. Financial institutions systemically remain crucial but are still in a required reversal required from management for better balance between being marketers of securitized products and being bankers. Such evolution could take years and as a central theme, we expect to favor quality in operations/services as well as balance sheets. Such a stance may appear innocuous but in fact represents a radical departure from the market behavior of the cycles since the 1980s which progressively ratcheted upwards, albeit with hiccups, on accelerated credit and lowered standards. For both the S&P 500 and globally the MSCI World index, valuations are not low. Post their 1990s’ debacle, Japanese corporations may have exacerbated duress by forcible cost savings from struggling suppliers. Now and globally, we expect farsighted companies to eschew such pressures—another dimension to our favor for quality. Sector wise, we see the financials as crucial and favor as well amongst operating sectors the industrials; the information technology space especially communications; healthcare especially pharmaceutical/biotech restructuring; large cap energy and gold/precious metals in materials as hedge.

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