This Is Guernsey

By Simon Tostevin

THERE will be no significant interest rate movements in the UK until well into 2010, according to Sarasin and Partners chief investment officer Guy Monson.

He is predicting that the economic recovery under way at the moment will be completely different to any seen before, and that the UK, along with the US, Japan and most parts of the EU, would not be leading it.

‘Overall world growth will probably be between 1.5 and 2% lower than it was pre-crisis in the next three years,’ said Mr Monson.

‘But that is still strong enough to support corporate profits and dividends growth, both of which will underpin world markets.

‘But the order of the recovery will be unusual. Most of the older investors in the island will be used to the first interest rate rises as we move into a recovery coming out of the Bundesbank or the Federal Reserve, but this time around it is the commodity-producing countries such as Australia and Norway that will lead, followed by much of the emerging world, probably led by India and Brazil.

‘The EU, Japan, the US and the UK, and in particular the Anglo-Saxon economies, will be among the last to make any significant move in interest rates until well into the summer of 2010.’

Mr Monson (Pictured), who writes regularly in the international financial press and appears frequently on financial channels such as CNBC and Bloomberg, was in Guernsey to speak to local investors at a Sarasin Fund Management seminar.

He warned that booms in local stock markets, asset prices and regional property markets made investing in the emerging world more risky than it had been in the past few years.

‘Despite the strong growth previously we run at risk of creating asset bubbles. I therefore think for the first time in five years, that large blue-chip western equities will not only outperform bonds but likely outperform emerging world equities as they benefit from growth in Asia without the valuation risks of the local market.

‘But it’s a pretty positive economic picture with the asset bubble risks moving from west to east and the equity and asset opportunities moving from east to west.

‘Dividend growth in the West will remain robust and make high-yielding global blue-chips our preferred asset class of choice.’

And while he expected the UK stockmarket to continue to do well as more than two-thirds of FTSE 100 earnings come from abroad and more than 35% of its dividends were paid in dollars, there were considerable risks to be considered in the bond markets.

‘By the time that the current quantitative easing programme is completed, the Bank of England will have bought almost 26% of all gilts issued. The scale of this programme is without historic precedent and economists and academics have little real understanding or historical data to guide them in how yields will respond once the stimulus is removed.’

Article posted on 20th November, 2009 - 2.30pm