Investment Management Outlook - November 2011

World

Cautioning against excessive exuberance

Given the degree of concern surrounding the systemic risk posed by the Eurozone crisis (endangering both the global banking system and economy), the IMF meeting in Washington at the end of September assumed enormous importance in providing reassurance that the crisis would be confronted by a substantial policy response. The direct involvement of the US Treasury Secretary at this meeting added credence to the belief that the Eurozone leaders would finally produce a 'shock and awe' bail-out fund together with a cathartic and sizable bank recapitalization package. The post meeting market response was immediate, with risk assets including global equity markets bouncing 10% from their lows. The euro also strengthened. The rally in equities was further buoyed by evidence that the US economy was not just avoiding a double dip but was in fact registering a modest rebound and Q3 earnings reports were meeting expectations.