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Investment divergence will lead recovery says ING

27 October 2009 / by Rebecca Sargent

Investment divergence will lead a global recovery away from the synchronised slowdown, ING Investment Management has claimed.

According to the investment management firm, US and Euroland growth will be above par for the rest of 2009, as investors turn to a number of asset classes and regions, although growth will return to a 'subpar' level in 2010.

Commenting, Valentijn van Niewenhuijzen, head of fixed income strategy and economics at ING IM said: "The past year has been characterised by a global synchronised slowdown and a global forceful policy response. However, the remainder of 2009 and 2010 will be characterised by divergence."

A return to investment risk has seen flows to emerging markets improve dramatically, ING IM adds, which has led to "substantial currency appreciations."

In fact, since August this year, the driving force in financial markets has shifted away from the 'recovery trade' as equities have moved up as investors returned to risky assets.

Valentijn adds: "Since August the behaviour of the markets has changed as it has become more difficult to use the recovery trade to explain all markets. Since then, the performance of risky assets has started to diverge as equities moved up, while commodities weakened and credit was surprisingly resilient and even outperformed equities on risk adjusted terms."

Explaining this, Valentijn concludes: "The most obvious explanation is that the recovery trade has been joined, and to some extent overshadowed, by a 'liquidity-trade' as ample central bank liquidity and cash positions available in money market funds or within mutual funds of relatively cautious money managers has started to flow into all asset classes that provide a yield that is in excess of cash."

© Fair Investment Company Ltd

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