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November 29, 2011

Merrill Lynch lay out predictions for 2012

By Spear's

Today Merrill Lynch laid out their predictions for 2012 – a brave decision considering that Mervyn King told the Treasury Select Committee yesterday that, ‘It doesn’t make much sense to pretend we know how this is going to play out.’

Today Merrill Lynch laid out their predictions for 2012 – a brave decision considering that Mervyn King told the Treasury Select Committee yesterday that, ‘It doesn’t make much sense to pretend we know how this is going to play out.’

CIO, Bill O’Neill, stood up, however, and predicted that ‘the global economy will avoid recession’ and ‘experience fragile growth of 3.7%’.

The chief risk will be Europe. Described as ‘a hazardous investment’ by O’Neill – who looked like he’d had less sleep than Angela Merkel – it is set to contract 0.6%. Unfortunately that’s not going to be cushioned by the US, which will grow 1.9%, or China, which will slip below 9% growth.

So in a world of low returns and high volatility, how are you to survive?

’Investors should focus on investments that offer yield, quality and diversification,’ said O’Neill. Income strategies will do well as large caps outperform due to cash flow assurance, pricing power and strong balance sheets, he added, advocating information technology, consumer staples and healthcare as the most attractive sectors.

This is not the Doomsday scenario. It’s more caution than catastrophe. But O’Neill admitted that navigating such an environment is ‘fearsome’.

As we approach a year that could rival 1989 for its disorderly dissolution of a bloc, one in which asset managers distinguish not between core and peripheral sovereign bonds but between core-core and core, you have to wonder whether the oases of safe havens has dried up, and where if anywhere we are to drink in future?

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Have hope, though. History proves that the times that small investors think are the most risky are in the fact the least.

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