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Global economy unlikely to face double-dip recession

Tuesday 27th July 2010

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Global equities investor Russell Investments says the world’s economy will avoid a double-dip recession, with fundamental signs that things are better than the view often presented in the media.

Seattle-based portfolio manager Matthew Beardsley said the outside managers who invest on behalf of Russell’s clients are generally optimistic about the future. Russell manages US$170 billion on a global basis, with about NZ$4 billion coming from its Australasian clients.

Beardsley said that data such as recently improved US house sales, plus the fact that governments generally don’t favour policies that kill consumer growth suggest a steady, though not necessarily spectacular return to growth.

“A groundswell, a type of structural uplift is also being observed” and this is contributing to investment managers’ confidence, Beardsley said.

Corporate IT spending, typically put on hold during recession, is now on the uptick again as companies with more cash on their balance sheets look to upgrade their IT infrastructure.

“Investments in technology companies is a very reasonable bet given the cycle that is again going to be played out,” Beardsley said.

Equally, the middle-class aspirations of consumers in emerging economies such as China and Brazil have encouraged investment managers to investigate how they can hook into a global trend. Consumers in such countries want to eat better, and aspire to better housing. Under such a scenario, investment in food companies and regional banks in those economies taps into these aspirations, Beardsley said.

The advice given to all Russell clients is to diversify investments beyond their own country, and spread the opportunity for reward while reducing risk by taking a global portfolio approach.

New Zealand investors, for example, don’t have many hard materials companies to invest in; but given that exposure to commodities is such a world economy driver, investing in overseas companies that are in such an industry makes sense, Beardsley said.

He is looking for hopeful signs that global equity markets are becoming less volatile. The quantity and availability of information means that share prices are falling and rising more rapidly than they necessarily should. “That might be even though the underlying fundamentals within a company haven’t changed,” Beardsley said. “It would be better for shares and bonds if people didn’t get so depressed, then so exuberant.”

Russell Investments selects its investment managers carefully “as performance doesn’t follow a trend,” Beardsley said.

“We build fund managers from the cream of the investor crop; hopefully having a balance of value, growth and quality managers who provide a more stable ride for our clients over time.”

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