This week it was refreshing to see several comments of a more upbeat nature land in my inbox. Although the global economic situation is still bleak, one comment that caught my eye was the view of economist Roger Nightingale on the eurozone.
Speaking at the Pensions Management Institute’s Autumn Conference earlier this week, Nightingale put a positive twist on the situation from a pension fund perspective. He said although the inevitable disintegration of the euro will cause volatility, this was not the same as ‘risk’ and could actually result in some positives for pension funds. Nightingale explained many European countries would see levels of inflation around zero by the end of next year, but this situation may actually allow for investments in bonds and equities to produce strong returns in real terms, providing an opportunity for pension funds to improve their funding positions. While the eurozone situation will no doubt be central in the minds of trustees when making investment decisions, industry players believe upside risks are clearly visible in these volatile times. However, as ING Investment Management warned this week, investors may miss out on this due to their low confidence levels. Indeed, a survey of European institutional investors at the asset management firm’s Annual Outlook Conference earlier this week revealed 85% have major concerns about a eurozone collapse. It’s no surprise confidence is low. GDP data out this week revealed the eurozone has officially entered recession, showing the area as a whole contracted 0.1% in Q3 following a 0.2% contraction in Q2. Growth in core economies was offset by a surprisingly weak figure from the Netherlands. This came after Monday night’s meeting of euro-area finance ministers failed to approve the release of new funding for Greece. “The latest delay reflects deep disagreement about how to reduce current unsustainable debt levels. Until the euro area addresses this key issue, caused by the failure of the Greek programme, the threat of a disorderly exit from the euro area will remain real,” said AllianceBernstein senior European economist Darren Williams. So while it remains a mixed and uncertain outlook, investors should heed Nightingale’s words, remain confident and ensure they are nimble enough to take advantage of opportunities as they arise. And to end on a positive note, Aviva Investors this week improved its six-month outlook on the global economy, forecasting a 65% probability of “better days” up from its previous “hard times” (40%) . This, it said, comes following September’s aggressive policy response from the world’s top three central banks – the Federal Reserve, European Central Bank and the Bank of Japan. As the Dalai Lama once said: “Choose to be optimistic, it feels better.”
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