Sunday, October 10, 2010

10 Predictions For The Decade

10 Predictions For The Decade

By Jemstep | 10 October 2010

Earlier this year, Blackrock Investments offered 10 predictions for what might unfold during the next ten years, which we thought would be of interest to our readers. Here they are:

1. US Equities experience high single-digit percentage total returns after the worst decade since the 1930's.

Blackrock states that it is unlikely that we will witness double-digit returns for stocks in the coming 10 years. Blackrock is forecasting annualized US stock market returns of close to 8% for the coming decade.

2. Recessions occur more frequently during this decade than only once a decade as occurred in the last 20 years.

Blackrock notes that according to data provided by Ned Davis Research, over the past 100 years a recession occurred, on average, every 3.8 years. Over the past 20 years, however, recessions have occurred only once every 8 years. "We think we will be seeing something closer to the former number in the coming decade".

3. Healthcare, information technology and energy alternatives are leading growth areas for the United States.

Within healthcare, Blackrock points to increased healthcare spending as a result of the aging boomer population and advances in biotechnology as key drivers. "Additionally, the rise in patient-driven research and an increasing move toward digital healthcare record-keeping are potential growth areas for the healthcare sector". Blackrock notes that technology as a growth area for the USA is unlikely to slow down. "Innovations such as cloud computing have the potential to lower costs and increase productivity. Additionally, we have probably only begun to see the impact of social networking tools as economic growth engines".

Alternative energy has been a hotbed of activity in the Silicon Valley and other regions for a while, and Blackrock forecast a continuing upward trend here. "The realities of supply (such as diminishing coal availability) and geopolitical issues (much of the world's oil is controlled by governments that have unfriendly relations with the United States) will push innovation".

4. The US dollar continues to become less dominant as the decade progresses.

Although Blackrock predicts the prominence of the greenback to continue to fall in the coming decade, they still expect that the US dollar will remain the world's principal reserve currency. It is still the most liquid currency available; the market for US government paper remains the world's largest, and the US dollar is likely to still be one of the primary beneficiaries of "flights to quality" that occur during financial crises. "Over the next 10 years, we believe that the dollar is likely to gain ground against the yen and the euro, but it will also likely lose value against the world's minor currencies."

5. Interest rates move irregularly higher in the developed world.

Global interest rates are at a cyclical low, and a reversion to a more normal environment is anticipated. "Throughout the next 10 years, we expect the global economy to gradually transition from being dominated by deflationary trends to being dominated by inflationary pressures".

6. Country 'self-interest' (nationalism) leads to more trade and political conflicts.

In a difficult growth environment, and as individual economies continue to struggle, Blackrock predicts a rise in protectionist measures as well as trade and political conflicts.

7. An ageing and declining population gives Europe some of Japan's problems.

Apart from some economic problems, Blackrock also points to demographinc issues that are likely to act as a drag on European economic growth. With Europe's population aging, its labour force is likely to actively decline, say Blackrock. "Europe also has been experiencing declining birth rates. The combination of these factors has resulted in shrinking population levels in several European countries, including Germany and Italy."

8. World growth is led by emerging market consumers.

Blackrock states that "According to an analysis conducted by PricewaterhouseCoopers, the largest seven emerging economies (China, India, Brazil, Russia, Mexico, Indonesia and Turkey) will be close to 50% larger than the current G7 (United States, Japan, Germany, United Kingdom, France, Italy and Canada) by 2050. This analysis suggests that China will overtake the United States as the largest economy at some point around 2025, and India has the potential to surpass US growth levels by 2050. We think these estimates appear reasonable, and expect that, over the coming decades, the United States will remain a global leader in terms of economic power, but it will no longer be the undisputed 'king'."

9. Emerging markets weighting in global indices rises significantly.

Blackrock points out that in 1989, the MSCI All Country World Index included only eight emerging markets, accounting for less than 2% of the index. Today, there are 22 emerging markets in the index, accounting for 12%. Blackrock expects that level of growth to accelerate and anticipate that in 10 years, that level will be noticeably higher.

10. China's economic and political ascent continues.

In 2009, China surpassed Germany as the world's largest exporter, and it is likely that China will surpass Japan and become the world's second-largest economy during the next year. Blackrock points out that China does have some structural problems, including an ageing population, the ongoing threat of political unrest, and an economy that is still largely state-controlled and hampered by low levels of innovation. However, Blackrock still expects that the growing prominence of China on the world's economic and political stage is unlikely to be altered.

Based on these predictions, investors may be better equipped to position their portfolios for the future, such as focusing on opportunities in emerging markets and allocating to favored growth sectors.

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