In 2010, we experienced the continued volatility of global investment markets as a background to the surging growth of the emerging economies whilst developed countries planned their way out of recession. A theme which is likely to continue into 2011.

We hoped 2010 would bring clarity to the global economic position. We expected to see the results of the great experiment of trying to spend our way out of recession. To some degree, this has been answered in Europe as countries have abandoned fiscal stimulus but in the US the Fed has continued with this strategy and the outcome is still unknown. We hope 2011 will provide some definitive answers.

Where does this leave us in the short term? Equity markets have moved ahead in 2010 but what hasn’t changed is the reality of the economic position in both the US and UK. In the UK we are approaching a year which will see the fruition of cuts and higher taxes. In the US, unemployment remains stubbornly high and individuals have yet to make serious inroads into the massive amount of private debt they have accumulated over the boom years. Asian and Latin American markets are at all time highs.

These factors combined with a worsening demographic position which will affect consumption. This leads us to believe markets will have to accept these limitations before they can move ahead to take advantage of the “new order”.

So our forecast is still one of consolidation. As markets rise, this view becomes unfashionable, but at this time we still err on the side of caution rather than providing the green light to investment in markets which are still very vulnerable to the changing economic conditions.

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