Helaba Capital Markets Outlook for 2012

Global economic growth in 2012 is expected to return to an ordinary growth trend and remain at about 3.5 per cent on average for the year. Thus, the capital markets should finally sail into calmer waters again. "In many countries worldwide, a Gordian Knot has developed whose rope ends are high sovereign debt and insufficient competitiveness. An orderly insolvency of Greece and initial success of the structural reforms in Europe as well as an expansionary monetary policy worldwide will in 2012 help to gradually overcome the debt crisis and weak growth. The Gordian Knot can be untangled," argues Dr. Gertrud R. Traud, Chief Economist of Helaba Landesbank Hessen-Thüringen when presenting the survey in Frankfurt. In 2013, the global GDP growth is expected to expand somewhat more strongly again. 

The savings and structural measures taken in the South European countries of the Eurozone will at the end of 2011 be reflected by a higher risk of recession. "Considering that Italy has now also been forced to conclude a stability pact, the Eurozone - ex Germany - could experience a mild recession around the turn of the year. Germany will maintain its leading position in the Eurozone as long as the USA and China keep up their trend growth," says Traud. Nevertheless, after the extraordinary growth of about 3 per cent seen in the year 2011, Germany will now also return to normal growth rates. Whereas the Helaba experts forecast GDP growth of 1.2 per cent after all for Germany, growth in the Eurozone in 2012 will remain weak at only about 0.7 per cent. In den USA, the growth of real GDP of 2.2 percent will be just above the trend growth.

Bond Markets – Risks prevail

The ECB will presumably keep its key interest rate at 1 per cent so that the ground has been prepared for sustainably low capital market interest rates in Germany. Over the course of the year however two factors speak against German government bonds: The economy should recover and when the debt crisis in the Eurozone eases, weaker demand for the meanwhile extremely expensive Federal Government Bonds is to be expected. Yields of 10-year Government Bonds in Germany are expected to fluctuate between 2.6 per cent and 2.8 per cent in 2012, and between 1.8 per cent and 3.0 per cent in the USA. 

Euro – Trend towards Revaluation over the medium Term

The expansionary policy pursued by the ECB in the form of interest rate cuts and purchase programs is for the time being adversely affecting the euro. At times, the US dollar is going to benefit as at least temporarily safe haven, with the Fed's expansionary policy limiting the strength of the dollar. In the course of 2012, concerns about the debt crisis are expected to take a back seat and the economy in the Eurozone should regain its footing. Traud: "The ECB is then not going to intensify its expansionary policy any further. The euro should rise against the US dollar, all the more so as the US Fed has practically excluded a turnaround in interest rates for a prolonged period of time." The euro-dollar exchange rate should thus move in a range of 1.30 to 1.45 in 2012.

Equities Markets – Cyclical Recovery

After the DAX has checked out extreme scenarios in 2011, it is expected to sail in calmer waters in 2012. Nevertheless, its increased vulnerability to market movements is expected to continue into the first quarter. "Only when the economic key indicators will have bottomed out in the first quarter and prospects for growth gradually brighten up, will the propensity of buy-and-hold investors to take risk also increase again," said Traud. Possible price setbacks, at most down to the lows seen in September, should therefore be used for purchases. The DAX is expected to work its way back to the level of 7,000 points until the end of 2012.

Asset Allocation

The easing of the sovereign debt crisis in the Eurozone as well as more favourable prospects for growth will contribute to an increase of investors' propensity to take risk. Therefore, an overweighting should be given to equities, at the expense of bonds. A clear underweighting should be given to euro government bonds due to the negative earnings expectations; for investments in the money market, a neutral allocation is advisable. At the same time, a defensive maturities allocation is suggested for bonds. As regards commodities and gold, an allocation at benchmark level is on the whole recommended.

The complete survey may be downloaded » here (German Version; PDF).