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Unwinding of stimulus a key risk
The key risk for investors in 2010 is the possibility of central banks getting it wrong, according to a UK investment house, Standard Life Investments.
In an analysis of possible investment scenarios over the next two years, Standard Life said the uncertain reaction function and timing of the withdrawal of stimulus could have a large bearing on economic and investment outcomes.
It said the downside risk was that policy would be tightened too quickly, leading to continued deleveraging, increased savings and the chance of deflation.
However, Standard Life said its central case was a policy response that brought about a slow recovery in economic activity and consumer confidence but with subdued inflation.
Standard Life Investments global investment strategist Richard Batty said the policy response to the global recession and financial crisis had been unprecedented and this opened up the possibility of policy errors.
“Despite the risks, we believe a difficult balancing act by policymakers will be achieved, leading to a fairly benign asset environment,” he said.
AUTHOR
Mike Taylor
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