Opportunities in wake of the credit crunch
8 July 2008

Written by Sophie Baker

The world economy will experience below trend growth as it recovers from a series of credit and inflation shocks, says Standard Life Investments.

The investment firm predicts that investors will see long-term opportunities in credit, equities and property in 2008 and 2009, according to the latest edition of Global Outlook (Q3, 2008). This latest publication examines the aftershocks of the global credit crunch, inflationary risks and the monetary responses of central banks, in particular in the emerging economies.

Andrew Milligan, head of global strategy at Standard Life Investments, said: “Financial markets are responding to a variety of imbalances in the world economy. The aftershocks of a global credit crunch and declines in commercial and residential property prices in various countries are combining with an inflation shock and in some economies a monetary response. The resulting volatility has created both risks and opportunities for many investors.”

The firm, having examined these issues, said that the global credit crunch can be contained by the authorities, but its resolution will take more time and involve further re-capitalisation of the financial system.

“Secondly, inflation risks will be dampened by a lengthy period of sub-trend growth for the world economy, with continued risks of recession in some countries such as the US, the UK and parts of Europe. Thirdly, investors should pay more attention to the decisions be central banks in emerging economies, as policy errors are possible,” Milligan explained.

Milligan also sees volatility in markets as valuation opportunities, whether in financial sectors or credit markets.