Bahrain’s economy is likely to grow from two per cent this year to 2.4 per cent next year on the back of government investment, said the chief investment officer of Merrill Lynch Wealth Management.
But across the GCC and in spite of stable oil prices, growth is likely to slip from this year’s regional average of 6.9 per cent to 3.4 per cent, according to Bill O’Neill, CIO for for Europe, Middle East and Africa (EMEA).
‘Investors should focus on investments that offer yield, quality and diversification amid expectations that the global economy will avoid recession but experience fragile growth in 2012,” he added.
‘Global economic growth, at 3.7 per cent, will be led by emerging markets,’ he said at a meeting at the Ritz-Carlton Bahrain Hotel and Spa yesterday.
‘US growth will improve slightly, rising to 1.9 per cent, while China will benefit from a soft landing,’ he said. ‘But the pressing need for mature economies to reduce debt, combined with weak business spending and soft asset prices, threatens to result in a global recession. However, a worldwide slump can be avoided.”
‘A disorderly euro zone sovereign default and/or withdrawal from the common currency head the major risks. Other potential negatives include continued policy paralysis in Europe, contagion to other regions from euro zone de-leveraging, possible currency wars, the risk of bank runs and over-zealous fiscal austerity,” O’Neill said.
‘The combination of a weaker euro zone economy and a more active central bank will likely lead to a weaker euro in 2012. A depreciated currency should provide a support for the region in the face of weak final domestic demand.”
‘While current economic challenges are very different from those experienced in previous cycles, 2011 exposed the responses of policymakers as inadequate,’ he said. ‘A lack of internal and external co-ordination has been one of this year’s major disappointments.”
‘Improving global co-ordinated responses to indebtedness could give a major boost to the euro zone and world economy. The task of ensuring diversification across investment portfolios is complicated by a shrinking set of ‘safe havens’,’ he added. ‘We are stressing yield, quality and growth in selecting equities. In selecting equities in 2012, we are recommending a focus on large capitalised companies with strong cash flow and growing dividends. We urge caution but do not foresee catastrophe next year and continue to stress the need for a strategic framework to deal with ‘new normal’ conditions of slow growth and higher risks,’ he said. ‘This includes anticipating periodic bouts of substantial
losses, volatility bubbles and frequent switching between ‘risk on/risk off’,’ he explained.
Merrill Lynch Wealth Management EMEA recommends investors to be overweight in the US and the UK to be most effectively positioned for this environment.