As the new year kicks off, a variety of investment banks, analysts and market pundits have begun publishing their 2012 global forecasts. Preliminary reports are already pointing towards another trying year for the global economy. While market conditions can change in an instant, retail investors can get an idea of how to position themselves in the new year from reading what Wall Street pros have to say. With over $3.45 trillion in assets under management, investment manager BlackRock (NYSE:BLK) certainly qualifies as a Wall Street professional and investors might want to take heed of the bank's cautious optimism.
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The Year of Living Divergently
Overall, analysts at BlackRock's Investment Institute (BII) estimate that the upcoming year will be another one of sub-par and slow growth for much of the world. The United States will face some headwinds, but will achieve economic growth in the neighborhood of 1.75 to 2.5% in the new year.
Smaller developed markets, such as Canada, Australia, Singapore, Switzerland and Hong Kong, are expected to grow significantly faster, as well as most emerging markets. In fact, asset managers predict that 2012 could be the year when the decoupling theory finally materializes and emerging market nations ultimately move into the top spots.
Europe will remain the downward pressure on the world's economies, as the continent should slip into a recession. However, BlackRock estimates that this should be mild and avoid a disastrous all-out crisis. (For related reading, see What Is An Emerging Market Economy?)
In addition, the investment bank predicts another year of ultra-low interest rates. Investors will continue to favor income investments, as a global retirement boom and longer life expectancies underpin this trend. BlackRock also predicts that despite all the quantitative easing and monetary policy used to combat the credit crisis, inflation is unlikely to pick-up throughout the year.
Despite this relatively flat "Great Idle" prediction, the BII report also sees a real possibility of a far more challenging global "nemesis" scenario. This would be caused by European political paralysis and an escalating debt crisis there. This set of circumstances would result in a global recession, a credit crunch and steep losses across a variety of asset classes around the world. BlackRock assigns around a 30% chance to this scenario. (To learn more, read Recession: What Does It Mean To Investors?)
Playing BlackRock's Forecasts
With BlackRock assigning around a 60% chance to the slow growth proposition, investors may want to position themselves to take advantage of this environment. One major highlight is the notion that U.S. stocks will outperform non-U.S. equities for the third year in a row, as investors finally return to equities. Growth stocks should get the nod in investors' portfolios and the iShares S&P 500 Growth Index (ARCA:IVW) bets on the 279 largest growth stocks within the S&P 500. In addition, mega-cap paying dividend stocks will be in demand, as these payments will be necessary to navigate the side-ways market. The Rydex Russell Top 50 (ARCA:XLG) yields about 2.05% and features the 50 largest U.S. firms.
Corporate bonds will continue to show their dominance in the zero-interest rate world. The iShares iBoxx $ Invest Grade Corporate Bond (ARCA:LQD) is the behemoth in the sector with nearly $17 billion in assets. The ETF tracks about 736 different corporate bonds from issuers ranging from AT&T (NYSE:T) to GE Capital (NYSE:GE).The fund yields approximately 4.4%. (For additional information, read Are High-Yield Bonds Too Risky?)
BlackRock's Chief Equity Strategist Robert Doll sees China and India contributing more than half of the world's economic growth, despite signs of slowing in these two nations. The First Trust ISE Chindia ETF (ARCA:FNI) offers a direct play on both nations within one ticker symbol.
Finally, with such a high percentage assigned to crisis, BlackRock suggests using a barbell strategy and having the other half of your portfolio in cash, t-bills and precious metals. The PIMCO Enhanced Short Maturity ETF (ARCA:MINT), SPDR Barclays Capital 1-3 Month T-Bill (ARCA:BIL) and ETFS Physical PM Basket Shares (ARCA:GLTR) are easy ways to play cautiously.
The Bottom Line
As 2012 begins, a variety of analysts and market pundits have started making their full predictions. Strategists at BlackRock estimate that 2012 will be another year of slow economic growth. For retail investors, the previous exchange traded funds offer a way to play these circumstances. (For related reading, see Should You Invest In Emerging Markets?)
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At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.