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2011_Outlook - GS

2011_Outlook - GS

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Published by Jonathan Heines

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Published by: Jonathan Heines on Jan 13, 2011
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For Private WealthManagement Clients
InvestmentStrategy Group
 January 2011
Stay the Course
The American Evolution
: Much like George Washington crossing the DelawareRiver in the winter o 1776-77, America’s structural resilience, ortitude andingenuity will carry the economy and nancial markets in 2011 – and beyond.
2011 Global Economic Outlook
United StatesEurozoneUnited KingdomJapanEmerging Markets
2011 Financial Markets Outlook
United StatesEurozoneUnited KingdomJapanEmerging MarketsCurrenciesFixed IncomeCommoditiesKey Global Risks
This material represents the views o the Investment Strategy Group in the Investment Management Division oGoldman Sachs. It is not a product o the Goldman Sachs Global Investment Research department. The views andopinions expressed herein may dier rom those expressed by other groups o Goldman Sachs.
Cover photo © Art Resource, NY.
Stay the Course
We have been optimistic about the US as aninvestment story since the depths o the nancialcrisis. We remain so or the year ahead.The US Will Not Face a “Lost Decade”The current economic environment has led some toquestion whether the US will ace a “lost decade”akin to Japan’s in the 1990s. We believe that ishighly unlikely.Faster Growth Does Not Result in Higher ReturnsSome emerging markets are likely to continue seeinghigher GDP growth rates than the US. But that does notnecessarily make their equity markets more attractive.Structural Benets o the USThe US’s inherent resilience, fexibility anddynamism continue to make it uniquely attractiverom an investment perspective.
Outlook 3Investment Strategy Group
Stay theCourse
Sharmin Mossavar-Rahmani
Chie Investment OfcerGoldman Sachs Private WealthManagement
Brett Nelson
Managing DirectorGoldman Sachs Private WealthManagement
“America boosters!” That is how one o ourmost sophisticated and well-inormed clientssarcastically concluded what was to be our lastclient meeting o 2010.His exclamation was all in good un, but alsobased in truth: Since the depths o the nancialand economic crisis, we have stood against thecrowd in our optimistic view o a US recovery,US investment opportunities and the US dollaras the reserve currency o the world or theoreseeable uture. That outlook, unpopularas it was, led us to two key investmentrecommendations: overweight US high yieldbonds and US equities in our clients’ portolios.Market returns and the US economic recoveryhave proven us correct. At a total return o 83%since March 2009 (as measured by the BarclaysCapital US Corporate High Yield Index), UShigh yield bonds have oered not only extremelyattractive absolute returns (over 100% romtheir trough), but also the most attractiveinvestment return per unit o risk as measuredby volatility, ar surpassing any other asset class.I one were to include other measures o risksuch as saety o assets and capital controls, therisk/reward is even more attractive. Similarly,US equities have returned 93% (as measured bythe S&P 500 Index) with annualized volatilityo 17% in spite o annualized economic growtho only 2%. Over the same period, emergingmarkets returned 100% (as measured by theMSCI Emerging Markets Index) with annualizedvolatility o 18% and annualized economicgrowth o 7%. And the US dollar is actuallyabout 7% higher than its pre-crisis levels.Our avorable inclination toward the US islongstanding. In our 2009
Uncertainbut not Uncharted 
, we argued that while thenancial crisis was more severe than anything inrecent memory, one only had to go back a little
Additional Contributors romGoldman Sachs Private WealthManagement:
Neeti Bhalla
Managing Director
Leon Goldeld
Managing Director
Maziar Minovi
Managing Director
Thomas Devos
Vice President
Benoit Mercereau
Vice President
Matthew Weir
Vice President
Harm Zebregs
Vice President

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