City Watch: Powerful trends are at work in world markets, says Charles Sylvester

THE past month has been extremely eventful. Superstorm Sandy closed the New York stock exchange for two days and created damage likely to hit US GDP by up to 0.5%, President Obama was re-elected and in China and the National Congress announced a new leader while, once again, both Greece and Spain teeter on the brink.

The factors that will shape the economic and investment outlook for 2013 are how the United States’s politicians deal with their deficit, debts and taxes (what has come to be known as the Fiscal Cliff), and political developments in both the Eurozone and China.

In the UK, possibly as a result of better GDP figures and slightly higher than expected inflation figures, the Monetary Policy Committee opted not to extend its Quantitative Easing (QE) programme, and Mervyn King has warned QE has nearly reached its useful limit.

However, never say never, and more money printing might be required if the US politicians fail to deliver or the Europeans run into further trouble.

In the US, improved housing activity is beginning to lift the economy and recent non-farm payroll figures confirmed that there has been a sustained improvement in job creation over the summer.

Although the UK recession may be over, we are likely to remain in a low growth environment.

The political and economic trends are so powerful that investor’s strategy should remain unchanged – play safe in quality. Significantly, despite all the events and prospective risks, volatility in the markets remains relatively low and this looks like encouraging asset allocation towards equities.

: : Charles Sylvester is a stockbroker with Charles Stanley & Co in Ipswich.