Financial markets are heading for a crunch point which will create new opportunities for investors – that's the view of investment adviser Brian Dennehy, who this week published the 21st annual edition of his firm's TopFunds guide.
"We could encounter a significant turning point in 2012 as the eurozone crisis stumbles to new extremes," Mr Dennehy said. "It will force more effective action by politicians and create long-awaited opportunities for bargain-hunting investors."
He believes politics will play an important part in effective investment planning this year.
"Any investor or adviser who chooses to ignore the political angle in their investment planning is being negligent," he warned.
"However the catalyst for greater turbulence throughout 2012 will be angry voters, while in 2011 it was incompetent politicians."
He said investors hoping to beat the markets this year need to be prepared to change course under conditions of great uncertainty.
The problem, of course, is the ongoing attempts to rescue the eurozone by restructuring.
The changes will impose limits on the spending of all members of the eurozone, which will be the greatest constitutional change for the countries affected since 1945. The fact that the proposed spending limits will be enforced by the European Commission effectively means a loss of sovereignty in all 17 eurozone countries, points out Mr Dennehy. He said the changes will have a greater impact than the introduction of the euro.
"But the proposal still has to be approved by individual governments and, crucially, by voters in many cases," he pointed out. "Will people in Spain or Greece or France accept that decisions on new hospitals or schools will effectively be decided in Brussels or Frankfurt?"
So what opportunities could that create for British investors? "There are plenty of individual UK businesses that are adjusting well to a difficult environment," said Mr Dennehy. As a consequence he suggests looking at UK growth funds.
"Even in the current difficult conditions there are UK growth funds performing commendably, " he said, mentioning the JOHCM UK Opportunities fund, which grew 4.3 per cent last year, and the Liontrust Special Situations, which was up 7.5 per cent in 2011. However, he added that investing solely in the UK will mean missing out on overseas potential.
Mr Dennehy believes now is not the time to buy into the US, but that, further afield, investors seeking income could do well to look east.
"Asian economies are close to a new upswing," he predicted. "In the short term, the storms reaching out from the eurozone will delay a positive response by Asian stock markets, but that turnaround will come."
He picked the Newton Asian Income fund's outstanding track record for growth and said, looking ahead, that Henderson's Asian Dividend Income has an interesting edge with its greater exposure in China.
"There are also some outstanding funds with a global mandate," Mr Dennehy said, citing Newton Global Higher Income, M&G Global Dividend and Artemis Global Income.
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