Even with GDP growth in most of the developed world expected to creep ahead at a 1.6% rate, ING forecasts equity markets will grow between 8% and 12%, fixed-income securities will advance between 2% and 5%, and both the real estate and commodity markets will rise by between 9% and 14% in 2011.
Paul Zemsky, ING Investment Management's head of asset allocation said several factors are contributing to the positive outlook for investing:
Investor funds are flowing into riskier assets. Investors are slowly moving their money out of "safe" investments like Treasury bonds and into stocks and high-yield bonds because they are less willing to accept yields of 2% or lower. "The migration of investor money out of safe, but expensive, low-yielding investments such as Treasury bonds into other fixed income and equity investments will raise the prices in those markets and help to restore confidence in the U.S. market," says Zemsky.
Consumers and governments continue to repair their balance sheets. As the process of deleveraging continues, market liquidity increases, leading to more consumer spending, which drives company earnings and more corporate spending on equipment and M&A deals.
Emerging markets show leadership. Emerging markets are poised for significant growth, as many developing nations have fewer debt issues than the developed nations, as well as higher relative GDP growth rates.
The Fed is maintaining a low-inflation, low-interest environment. The introduction of quantitative easing other monetary policies has helped to ease inflation fears and seems to be keeping deflation at bay as well.
In light of the positive forecast, Zemsky said investors with the risk tolerance to move more aggressively into equities, "should focus on finding high-growth companies and value stocks with dividends higher than 2%."
Christine Hurtsellers, chief investment officer of fixed income and proprietary investments at ING, suggested investors with a more moderate risk tolerance could find good value in high-yield bonds, primarily because of strong corporate balance sheets and solid earnings momentum. The bonds of consumer cyclicals should be particularly attractive in this environment, she said.
She also said there were great opportunities in commercial real estate mortgage-backed securities because interest rates continue to remain low and property prices have stabilized, which has led to an increase in securitization in the market. Hurtsellers also said emerging market debt would benefit because of the better debt positions of emerging market nations, economic policy moves by sovereign governments and the flow of money from investors seeking higher yields. She suggested Indonesia and Hungary were two of the most attractive areas to invest in emerging market debt.