Summary

• Diversified’s investment process has better results when financial markets are most influenced by fundamentals, than in emotional times.

• 2011 was swept by recurring fears that the world may be destined for another recession, or worse.  But the USA economy did not enter a ‘Double-Dip’ recession and China did not suffer a ‘Hard-Landing’ economically. 

• Sure, Europe is testing the boundaries of unlimited government, but that has been decades in the making. ‘Crisis’ debt levels are mostly manageable, but political will, to address the cause-excessive spending – or to tackle unfunded liabilities, is not yet evident.

• Importantly, global aggregate growth is intact, if a notch lower than was forecast one year ago.

• During 2011, Bonds blossomed while Equities eroded. We sense a reversal in 2012. There will be no shortage of Government bonds ahead.

• The NZ economy is resilient, blessed by remoteness from 2011’s trouble spots. Currency is a commercial and investment hazard, jerked around by global ’risk-on’ or ‘risk-off’ vacillation.

• Corporations are the stand-out sector with generally sound balance sheets. Strong earnings and profitability should be underpinned by reasonable economic growth ahead.  Equities are the preferred asset class.

• Commodity prices pulled back sharply in 2011. Many may have ‘priced in’ more sluggish global growth than now seems probable. Selected commodity producers are very profitable even at current prices.

• Emotive forces overwhelmed financial markets in 2011. Fickle sentiment triggering big rallies or falls, often on successive days. Diversified expects fundamental forces most likely to reassert as 2012 unfolds.