Recession created two economic worlds

Robert Pires, senior investment
strategist at BIAS (Cayman) Ltd, gave an optimistic but cautious economic
outlook at the latest of BIAS Cayman’s quarterly market briefings on Wednesday
12 May.

The presentation titled A Tale of
Two Worlds – The Great Recession Aftermath argued that two seemingly different
economic worlds have emerged after the global financial meltdown, each of which
will face unique challenges in the months and years ahead.

Using a quote from Charles Dickens’
A Tales of Two Cities, Mr. Pires said is the “worst of times” for the “old
world” economies which include some EU countries, the United Kingdom, and
Japan, as they suffer through the “season of despair” following the global
economic downturn. 

Held back by mounting public debt,
and aging populations these regions are expected to grow much slower than the
growing economies of other regions such as China and emerging Asia, Australia,
Canada and Brazil.

Currently the most prominent
example of the “old world” crisis is the situation in Greece, where the
citizens are rioting over measures being proposed to combat the country’s soaring
deficit. Meanwhile, many citizens have not been paying taxes and 30 per cent of
the population works for a bloated public sector.

BIAS Cayman expressed the opinion
that while growing economies are not impervious to the recession, they are
fairing much better than the old world economies as their banking systems have
not been as stressed by poor loans.

Their biggest concern is
controlling the risk of too much growth and rising inflation. The younger
populations of these areas have generally emerged as a rising consumer class
now affecting the balance of trade globally.

BIAS Cayman sees the US as a pivotal
factor in the global economic equation caught in between these two contrasting
worlds. The US was hit hard by the recession and there is still great reason
for concern, particularly with respect to rising debt levels. Nevertheless, “economic
rainbows” are forming as the US housing market stabilises and as employment
levels show early signs of improvement.

BIAS (Cayman) Ltd also outlined its
positioning of investments with respect to regions and market sectors. BIAS has
implemented strategic positions across equities, fixed income, currency and
commodity markets. For the equities portfolio, BIAS Cayman uses a balanced
portfolio approach which includes both “tortoises”, corporate stalwarts that
provide steady returns, and “hares” which consist of reasonably priced growth

The “tortoise” selections include
companies with strong brands, who have been growing slowly but steadily and who
have strong balance sheets and consistent earnings throughout the business
cycle. Some of BIAS Cayman’s recent selections in this category include Royal
Dutch Shell Plc, Time Warner Inc, CVS Caremark Corp and Banco Santander

In contrast BIAS’s “hare”
investments consist of highly innovative companies that are growing faster than
the overall economy. They are market leaders who have benefitted greatly at
their competitors’ expense and the rebounding global economy is now providing
legs for even faster growth from those select stocks. Some of BIAS Cayman’s
“hare” selections include Research in Motion Ltd, the maker of the Blackberry,
Intel Corp, Best Buy Co and Google Inc.

BIAS Cayman believes that the
present decade will be full of economic challenges with part of the world
working to mend and rebuild, while the other tries to maintain strong economic
growth and minimise inflation risks. 

In these times it is important for
investment managers to remain opportunistic and nimble using market volatility
to their advantage, BIAS said.