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Recovering markets beginning to find their feet, says RLAM

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While it is still too early to call an end to the current economic malaise, it is possible to consider the shape of an eventual recovery, according to Robert Talbut, chief investment of

While it is still too early to call an end to the current economic malaise, it is possible to consider the shape of an eventual recovery, according to Robert Talbut, chief investment officer at RLAM.

Talbut (pictured) says there are factors which suggest prospects are brightening. These include:

• An increase in positive newsflow as some key indicators turn positive;
• A shift in investor sentiment from a fear of further market falls towards a fear of not missing market rallies;
• Central Bank liquidity being increased at unprecedented levels with government policy encouraging the deployment of cash; and
• Valuations at levels which encourage greater investor participation, with "risk" assets offering better value than "safe" assets.

He says that given the unusual nature of the downturn and the unconventional policy response, while the early recovery could well be sharp, the sustainable growth path is unlikely neatly to follow any previous precedent.

The economic and market extremes which have now led to widespread de-leveraging, greater regulation, spending cuts at consumer and governmental levels and increased taxes suggest that medium-term prospects will be subdued.

Against this backdrop, active asset allocation and the employment of a range of assets with genuine diversification benefits will be key and the realisation of positive returns will depend on the flexibility to employ a range of investment styles. 

Jonathan Platt, RLAM’s head of fixed interest, says credit will remain a vital cog within capital markets and the broader economy, continuing its phenomenal growth over the last 20 years. An increase in demand for fixed interest coupled with potential further tax advantages will help maintain its importance.

Credit markets continue to face headwinds, namely competition with the high level of gilt issuance and a challenging economic environment which may preclude issuance from certain companies. Nonetheless, with valuations at extremely attractive levels, Platt says broadly diversified credit portfolios look set to perform well as the asset class recovers.

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