Investors would do well to lower return expectations, says SLI
GLOBAL - Investors should abandon expectations of the kinds of returns seen during the past decade, as the global economy enters the next phase of the financial crisis, according to Standard Life Investments.
Andrew Milligan, head of global strategy, warned that this "extremely difficult period" would see markets grapple with not only economics and business but also politics as factors affecting performance directly.
Milligan, who has previously worked at the UK Treasury, said the last week had seen a situation of "information overload".
Citing recent market events, including the weak performance of the Dax last Thursday, he said markets were attempting to understand if economies were entering a recession or simply a period of slow growth.
"The markets are desperately trying to work it out, and you can see when the [US Federal Reserve] type surveys appear, the market crashes," he said.
"On days where the outlook in economic data is a lot more positive, the market bounces back quite strongly."
Milligan stressed that returns were set to be lower for equities, property and fixed income than they have been in the past.
"This does not look to be an environment where you are going to be making very strong returns, so lower your expectations," he said. "Clients should lower their expectations."
Addressing the role of politics in the current climate, he cited the market volatility surrounding German chancellor Angela Merkel's meeting with French president Nicholas Sarkozy, which resulted in a pledge to better coordinate economic policy.
"Political decisions are not easy at the moment," he said. "Politicians do not know what to do - even if they do know what to do, they've then got to persuade the electorate to follow on behind."
Milligan said many had spent the last year hoping for further quantitative easing from the US Federal Reserve, believing this would solve some of their problems.
"Symbolically, the Standard & Poor's decision was the time people said it was not going to be over easily - this is going to take a long time," Milligan said.
"We continue to emphasise that we are probably two or three years into a decade-long adjustment process.
"This will take another 3-7 years before debt problems have been worked out for many governments."