There are indications that this year will see broader growth, led by improving economic conditions in the U.S. and China, but institutional investors still need to focus on managing the substantial risks that remain, according to investment consultant Mercer.
Uncertainty remains over the global economy, but if the corporate and private sectors shift their state of mind to low growth from no growth, it will bode well for risk assets such as equities, according to a Mercer news release. Wage restraint, corporate restructuring and an improving credit environment in parts of the U.S. and western Europe could also signify a revival of market spirits, the news release adds. However, Mercer predicts a “more of the same” scenario will apply to Europe and possibly the U.K.
“Differentiated economic activity between countries will provide good opportunities for bond and currency managers,” said Divyesh Hindocha, global director of consulting in Mercer's investments business, in the release. “The corporate sector is awash with liquidity and, while this may not get spent immediately, it provides a solid foundation for any recovery.”
As a result of its forecast, Mercer is encouraging clients to maintain broadly diversified asset portfolios, hedge against inflation, consider reducing commitment to “safe haven” assets, improve shareholder engagement, avoid unnecessary turnover and manage capital efficiently, and flexibly manage portfolios.