Fidelity expects the eurozone debt crisis should enter final phase in 2012. Equity investors should focus on income-generating stocks
Mumbai, 8 December, 2011 - The year ahead will be a difficult one for equity investors with the prospects for capital appreciation in most developed equity markets expected to be low, and the need to focus on the income-generating aspects of equities has never been greater, says Fidelity Worldwide Investment (Fidelity).
Fidelity Global Chief Investment Officer, Equities Dominic Rossi says while emerging markets will not be immune from eurozone-inspired volatility, their attractions will become more conspicuous as the developed world’s problems are laid bare during the final, volatile phase of the sovereign debt crisis.
Economic weakness and financial contagion in Europe will inevitably impact global growth. However, Fidelity does not see a slowdown in emerging markets as a big concern because these markets face inflationary pressures to which slower growth is a partial solution. This allows monetary policy in emerging markets to become more accommodative.
While the prospect of capital appreciation is very low in developed equity markets, Mr Rossi believes opportunities exist in income and in emerging markets.
“Within equities, investors should focus on high-quality, defensive companies with stable and reliable earnings streams, which pay high and sustainable dividends. The dividend income offers a measure of protection to investors against further market volatility. These companies are typically large, robust household names, which may well prove to be a relatively safe place for investors to park some of their cash, when consideration is given to the mounting stresses in the banking system,” says Mr Rossi.
He adds that the contrast between emerging and developed markets will become even more conspicuous in 2012. Investors should be aware of buying opportunities in emerging markets that allow them to increase exposure at attractive prices.
“We believe that emerging markets will ultimately deliver better economic and stock market performance in 2012 than their overly indebted developed counterparts. The long-term case for emerging markets is intact and the fact we are in a ‘two-speed world’ in economic growth terms will only become more obvious,” says Mr Rossi.
“In episodes of heightened volatility, emerging markets will not offer near-term respite as equity correlations converge, but investors should begin to reward their superior economic fundamentals and their better ability to recover from the slowdown in global growth over the course of 2012. The headwinds in emerging markets are cyclical in nature rather than structural, so the case for investment is robust on a medium- to long-term view.”
