About this time last year, I looked at 10 predictions for 2012 made by Nariman Behravesh, the chief economist at US-based IHS Global Insight and I threw my two pence worth in as well.
Let’s see how we went.
I kicked off the piece in the following way: “One prediction I will make with confidence is that this year for investors in Australia will be better than 2011. Last year was one dominated by political posturing and procrastination that left global stock markets in a no man’s land.”
Spot on
Well. I absolutely nailed that one, and our market being up around 14% was a great bonus given what my job is, and that’s giving investors and super trustees the right leg up.
Around the same time a well known market commentator was telling Aussie investors to rid themselves of stocks – but within a month he had changed his view.
Here’s another one of my predictions which was spot on: “… when the European Union (EU) and the European Central Bank (ECB) lift their game, then we can start taking tentative steps out of no-man’s land.”
This great market outcome was ensured when Mario Draghi, the boss of the ECB, uttered those immortal words: “Whatever it takes.”
This was my thinking a year ago: “If Europe can come up with better decisions, it will add weight to optimism over the US economic recovery, where even the housing sector is starting to see some green shoots.”
Given the readings we are seeing on the US housing recovery, I’m now at three out of three, but I was helped by Michelle Meyer, economist at Bank of America Merrill Lynch, who said: “Looking ahead to 2012, we believe residential investment will be a net positive to growth next year due to the two bright spots of the construction sector: multifamily building and renovations.”
Sure I didn’t get everything right in 2012, but I got the three above – my call on China and the bagging of the Reserve Bank of Australia (RBA) for delaying rate cuts – absolutely correct!
In January, I will have a crack at my 2013 predictions.
The predictions
So, how did Nariman Behravesh go?
One
“World economic growth will slow and Europe will determine how hard a landing China will have, which is slowing down faster than expected.” That was pretty well right for Nariman, but I threw this in: “I think Europe will do better than expected and China will turn it around; this will help the Shanghai Composite index, which has been nose-diving since May, and that will in turn help our economy as well as stocks.”
I got the China story right, but the Shanghai Composite had a shocker all year, only recently heading up.
Two
“Asia will grow fairly strongly, around 5.5%, with Japan’s reconstruction spending helping to offset Europe’s recession impact.” Nariman got the number right, but he would have been surprised at Japan’s recession.
Three
“Emerging economies outside Europe will grow fairly well because they are more dependent on the US and China relative to those in Europe. This underlines the need to watch China closely.” That’s a tick for Nariman.
Four
“Commodity prices won’t plunge, but will more than likely move sideways. This should put a floor under the share prices of the likes of BHP-Billiton (BHP) and Rio Tinto (RIO).” He got this one wrong and by association, so did I, but it did provide a buying opportunity, which I did argue from mid-year. My Rio play was a beauty for my SMSF!
Five
“The outlook for inflation is benign.” And that was right.
Six
“Interest rates will be kept low worldwide and our own Reserve Bank of Australia (RBA) will cut rates early in the year, which will help our stocks as well.” They did cut, but as usual, they stuffed around.
Seven
“Fiscal policy worldwide will be tighter, which will hit demand and keep a lid on growth.” This was fairly correct but this is what I added: “Overall, this will contain stock price potential, but against this, there will be a bounce back in shares if the European rescue plan gains credibility over the next few months.” The EU plans did gain credibility and stocks spurted higher.
Eight
“The US dollar weakens against most currencies apart from the euro and if the EU crisis worsens, Nariman Behravesh argues we will see parity between the dollar and the euro.”
This is what I said: “I don’t like currency predictions, but if the Europeans surprise us all, then the euro goes up, stocks go up and so does the Aussie dollar. Of course, the opposite applies.” This was spot on.
Nine
Nariman said: “Europe is at risk of creating a financial meltdown, which means we see a Lehman Brothers kind of market slump.” And I countered with: “I think the Europeans know this and the ECB would change its attitude and embark on a quantitative easing-style liquidity program.” I am impressing myself here!
Ten
Nariman argued: “China could have a problem with its real estate market and that would impact Asian growth and in turn hurt local as well as world growth,” and I added: “I still think this is a low order risk,” which was right and I hope it remains so.
My concluding remarks went this way: “I would like to end my peering into my economic and market crystal ball by pointing out that a lot of history points to a massive upshot in share prices when the worst of Europe’s problems have passed us.”
The worst of Europe’s problems are not completely gone, but some good steps were taken and that’s why my market predictions worked out nicely.
As I said, in my next newsletter I will put my head on the chopping block for 2013.
Have a Happy New Year!
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