Risks of prolonged market turmoil in emerging markets and of deflation in the euro area are threatening the world’s improved economic prospects, according to the International Monetary Fund.
The IMF, in a staff report prepared for central bankers and finance ministers from the Group of 20, said the recovery is still weak and “significant downside risks remain.” A January global growth forecast of 3.7 percent for this year, from 3 percent in 2013, hinges on recent market volatility from Turkey to Brazilbeing short-lived, according to the report.
“Capital outflows, higher interest rates, and sharp currency depreciation in emerging economies remain a key concern,” according to the report prepared ahead of the G-20 Feb. 22-23 meeting in Sydney.
From Blomberg Feb 2014:
======Europe Deflation Risk Seen by 74% in Global Investor Poll
In the latest poll, appearing in the June issue of Bloomberg Markets magazine, investors view the U.S. as the world’s bright spot, with close to two-thirds describing the largest economy as improving. That jibes with the forecast of the International Monetary Fund in its World Economic Outlook in April that U.S. growth will accelerate to 2.8 percent this year and 3 percent in 2015, up from 1.9 percent last year.
On the question of which one or two markets offer the best investment opportunities over the next 12 months, the U.S. comes out on top, with 44 percent. Investors continue to endorse the recovery in the European Union, which is in second place, at 32 percent. That’s a far cry from the low of 7 percent for the region in November 2010, when the euro-zone sovereign-debt crisis was getting worse.
Poll respondents, however, are overwhelmingly concerned about deflation in the euro zone. About three-quarters of them say it’s a greater threat to the region than inflation. Some individual countries such as Portugal have already experienced deflation this year, and the inflation rate in the 18-nation bloc as a whole was 0.7 percent in April, which is about a third of the European Central Bank target of just under 2 percent.
One reason to like European stocks is that they’re cheap, relatively speaking, according to Russ Koesterich, chief investment strategist at New York–basedBlackRock Inc., which manages $4.3 trillion in assets. “Most of the motivation is the valuation,” he says. Koesterich recognizes the growing caution the poll reveals. “People can still be overweight stocks and use the opportunity to raise a little cash, given the fact that there are some risks out there and stocks are no longer so cheap,” he says.
Investors are nervous about Asia’s two largest economies. There’s growing doubt about Japan’s turnaround. Only 13 percent say the country is among the best places to invest during the coming year, which is a decline from 23 percent in January and 33 percent in May 2013, when excitement about Abenomics was running high.