“Europe is still probably the riskiest place,” said Paul Zemsky, chief investment officer of ING U.S.’ Investment Management’s Multi-Asset Strategies and Solutions Group (MASS), during a media briefing.
The European Central Bank has reduced—but not eliminated—the risk of a financial accident stemming from the debt crisis. While ING is optimistic that a financial accident in Europe will remain unlikely, there is still concern that economic weakness will remain acute for years, provoking political risks and keeping Europe crisis-prone.
Things in the U.S., on the other hand, are more positive. One reason is a better outlook for the housing market, according to Zemsky. “Overall, the housing market has really started to cure very nicely,” he said.Both home sales and construction have bottomed and should continue to contribute positively to GDP growth for the next several years, he added.
Regarding Japan, ING is optimistic about the impact that the country’s new program will have on equities. Japan’s new LDP (liberal democratic party) government under Shinzo Abe has announced an aggressive set of policy moves aimed at ending deflating and rekindling growth. These include:
- Large-scale Bank of Japan asset purchases aimed at bringing the inflation rate to 2%;
- Fiscal stimulus estimated at 10.3 trillion yen; and
- “Third arrow” of microeconomic and political reforms aimed at raising potential GDP growth rate through higher productivity.
Success of Japan’s “third arrow”—or structural reforms—will determine whether Japan will contribute to global growth, added Christine Hurtsellers, chief investment officer of fixed income at ING U.S. Investment Management.Policy shift has already led to a rally in Japanese stocks and a decline in the yen, according to ING.