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Co-ordinated action will allow an orderly default by Greece

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Rupert Elwes (pictured), fund manager from J O Hambro Investment Management’s private client business discusses economic expectations over the next few weeks…

We expect to see co-ordinated action by Europe’s politicians and central bankers to recapitalise the fragile banking sector and allow an orderly default by Greece.  In addition to this, we could see a reversal of this year’s interest rate rises by the ECB and indeed a form of ‘Quantitative easing’ (QE).  Finally, lower commodity prices are starting to reduce inflationary pressures in the BRIC economies and this could lead to easier monetary policy.

Already in the UK, the Bank of England has announced an additional GBP75bn of QE in an effort to boost economic growth and in the US the Federal Reserve has committed to its ultra-low interest rate policy until at least mid 2013.  In recent months, we have continued to adopt the same strategy that we embarked upon much earlier in the year, in some cases by raising levels of cash in portfolios and in others by raising the quality of stocks, with ever greater emphasis on ‘mega-cap’ defensive growth companies.

No doubt some earnings expectations will need to be reined back to take into account the impact of lower confidence, squeezed consumers and tighter corporate budgets, but we believe that a significant retracement has already been priced in and the next few weeks of corporate announcements will be especially keenly anticipated.

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