If it gets as bad as some people say it might, here's what to do with your money.....

Tuesday 13th October 2015

If it gets as bad as some people say it might, here's what to do with your money.....

Ref : "What to Buy in Next Recession as B of A Sees Massive Policy Shift" , Bloomberg Markets.

There's a growing number of commentators forecasting the onset of global recession in 2016. Even the IMF are constantly highlighting the dangers of it happening each time they attempt to nudge the US Federal Reserve away from raising rates, suggesting that such a move would be akin to pulling the rug out from beneath tottering emerging markets just when they needed the most support. Actually, there's a fair few financiers even in emerging markets who wouldn't agree. It's the uncertainty that's doing the damage, they say. Still, that's a debate for another day....

The point is that the world economy is in an undeniably perilous position. The drivers of growth since the 2008/9 crisis  --  China and other emerging markets  --  find themselves in danger of stalling as China's investment-led boom inevitably begins to slow. Europe and Japan are still struggling to combat negligible growth and fresh deflation fears even as they implement the loosest of monetary policies with near-zero interest rates and massive Quantitative Easing programmes. Even those nations who have managed to show some reasonable growth numbers, such as the US and the UK, have recently posted some less-than-convincing data amid suggestions that the growth cycle may already be nearer its end than its beginning.

Global recession in 2016 is certainly not a given, but IF it should happen Bank of America Corp have laid out  the sectors that they feel would perform best in such a harsh new reality. Much of the thrust of their argument revolves around a switch in policy by the authorities in the US, Europe and Japan from monetary stimulus to fiscal stimulus, and it's hard to argue with their logic. Interest rates can barely go any lower from current levels and QE programmes cannot be extended forever, especially if they fail to produce the desired results.

Fiscal stimulus on the other hand, with taxes cut and spending boosted, would certainly induce expectations of inflation. So, one should equally expect demand for gold, inflation-protected government bonds and property. Only slightly more speculatively, B of A suggest that authorities would take advantage of cheap raw materials and low borrowing costs to invest in infrastructure, thus boosting commodity prices. One could be forgiven for wondering whether such strategies would make up for the fall in Chinese demand from its heady peak, so perhaps their targets may be modest in this area.

And speaking of China, they'll be taking a different route according to B of A. With plenty of room to ease monetary policy, Chinese authorities will do just that and China's small-cap companies will benefit just as their western counterparts have done from years of near-zero rates and bond-buying programmes.

So there you have it .... one bank's view of what to get into : Gold, Index-linked Bonds, Property and smaller Chinese companies .... IF it all goes wrong.