RCM

Andreas Utermann, global chief investment officer at RCM, a company of Allianz Global Investors, highlights key themes likely to shape the direction of capital markets in the coming year and provides a brief outlook on how he expects major asset classes to perform.

Many corporations are finding themselves in a situation that should bode well for technology spending: They are holding record amounts of cash on their balance sheets and consuming their existing capital base as they depreciate their equipment. At the same time, many technology firms have likewise emerged from the crisis with strong balance sheets and in good financial condition. Yet the market has been slow to re-embrace the sector, keeping stock valuations at historic lows.

Analyzing various leading indicators, there is hardly any hint of a recession. This is not to say that there is no risk of a recession happening. A continued weak labor market is weighing on household consumption in industrialized economies. The housing market in the U.S. is showing signs of weakness. There is a risk of a policy failure in emerging markets, especially of China overdoing policy tightening. Fiscal policy tightening in the West may actually turn out to be too strong. In sum, we think that structural headwinds and tailwinds could balance each other out.