This morning global banking giant HSBC published its big outlook report for 2012, cheerily titled Outlook 2012 – Looking Past the Abyss.
The tenor of the report is upbeat, particularly about shares. The argument is pretty simple – while governments around the world are holding large amounts of debt, companies have managed themselves quite prudently.
“While governments were building debt to unsustainable levels, companies were paying down borrowings and building cash balances,” HSBC says.
“If you can look past the short-term fog and take a long-term investment approach, equities offer excellent opportunities for wealth generation.”
Perhaps that sort of thinking has got Australian investors all fired up at the start of the year. While trade on the Australian markets remains relatively light, with plenty of investors still enjoying the beach, the market finished up 1% yesterday and has risen almost 2% in morning trade thanks to a relatively upbeat night on US and European markets.
We’re all looking for a few bright signs at the start of the year, but I’d be wary about getting too excited about sharemarket rises or falls. As we saw last year, investors are skittish and sharp rises and falls are likely to be par for the course.
Instead, as HSBC says, we need to keep looking past the “short-term fog” at the longer-term and on that note there were two very interesting pieces of news coming from overseas last night.
The first came from Greece, that ancient civilisation that has seemed to be on the brink of collapse for an eternity.
The Greeks secured a bailout package worth $US170 billion in October last year, but it requires banks that hold Greek Government bonds to agree to reduce the value of what they are owed by half.
Not surprisingly, the bondholders aren’t so keen to do so. And Greece is getting a little shirty.
“This rescue package must be signed otherwise we are out of the markets, out of the euro,” a government spokesman said last night, adding that “the next three or four months are the most critical”.
There’s plenty to take out of that. If Greece defaults and leaves the Euro, that would send shockwaves throughout Europe.
But even if that doesn’t happen, SMEs need to understand that the bad news from Europe will likely run for a number of months to come. This is a situation that needs to be watched carefully, but it will not be resolved quickly.
The second key bit of news came from China, where Premier Wen Jiabao has warned of a “difficult” start to the year.
“The first quarter of the year may be quite difficult,” Wen told business people to mark the new year, according to a statement by the State Council, China’s cabinet.
“We are now in a situation where pressure from an economic downturn and high prices both exist. We have a relatively cool market. This is the core of current problems.”
China’s economic strength is of course crucial to Australia’s growth and signs of a slowdown in China need to be watched very closely.
China now faces the difficult task of giving the economy a nudge while not allowing inflation to again hit 6.5% as it did last year.
The Chinese Government has shown it can manage these ups and downs in the past (at least that’s what the statistics it puts out say, however much they should be believed) and Australia better hope it can do so again.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
