Celent, a Boston-based financial research and consulting firm, investigates how the main asset classes and investor pools have responded to the unfolding crisis and what the future holds for them. The report: Market Updates and Investment Trends: Where the Money Is?
In its new report Celent touches important issues of nowadays market. The company analyses present situation and predicts future bias. The key points of the exploration are as follows:
-The retail investor segment (especially the mass retail or middle class in many of the emerging markets) is certain to grow in importance, sophistication, and demand. Although hedge funds have been hard hit by the credit crisis, Celent expects the industry to rebound in the longer term. The main challenge for the industry going forward is to deliver on the alpha promise, because leverage has been removed from the game like never before. Investors will have stronger risk aversion for a year or two to come, which means we will see a period of greater financial conservatism in asset management.
– New assets must be viewed individually because the term encompasses markets at vastly different stages of the development cycle in terms of their available supply and market development. Distressed debt and infrastructure are believed to be at the forefront of emerging assets as a result of ample supply and heightened interest among a wider range of players.
– Celent believes that OTC derivatives markets and credit default swaps (CDS) will coexist in the long-term, because they cater to different needs and different players. Due to heightened regulatory pressure, however, the migration of some OTC market activity to central clearinghouses and ultimately to official exchange platforms will gain momentum.
– Rapidly expanding middle classes, notably in China and India make accelerate the development of emerging markets (EM). Celent considers EMs bullish and advises investors not to view diversification and uncorrelated beta as the primary purpose of an emerging market investment. Instead they should see them as a source of new returns (and new risk). EM should be seen as a heterogeneous continuum-from the least developed to the most developed.
-All asset classes will remain on the table post-crisis, but demand for new, complex structured products will be limited.
-Equity valuations will not reach the levels seen in recent years any time soon. A severe recession will make equities less attractive than other investments.
-The case where liquidity has been taken for granted wont do any longer. Investors will demand an appropriate premium for illiquidity.
-The credit crisis does not spell the end for the structured credit and securitization market, but the shape of these markets is likely to change: they will be smaller, but still significant, and use simpler structures. Weakness in the housing market will continue to adversely affect the mortgage-backed securities market and other highly structured bonds.
-Foreign exchange market is going to experience continued growth. FX will not be able to expand at the same rate as it has in recent years, as there are fewer market participants from broker/dealers winding down or merging. The end of easy credit is likely to hinder the flow of business from margin traders. This fallout can be somewhat compensated by retail investors becoming an integral part of the FX world.
– Celent anticipates tough markets and tremendous volatility for most of the commodities sector in the near future. The macro trend of rising commodity demand, supply-side constraints, and inflation, as well as the entrance of institutional investors, will make the fundamentals of these commodities stronger in the long run. Investments strategies must be active, not buy-and-hold, because market timing is critical to continued success in the commodities market.
L.D.