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Predictions 2012: Upside down and inside out

12 January 2012 By Robert Cole

Planet finance has a propensity to turn itself upside down and inside out. It’s up to its old tricks again. A new collection of commentaries from Breakingviews sets the financial agenda for the next 12 months.

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In 2012, the euro poses question number one. Those looking on the dark side think the single currency will divide into a collection of national or multi-national coinages. If the euro does break up, the toll on jobs, economic activity, freedom of movement, and social cohesion would be huge. And that’s why it probably won’t fail.

Bright-siders at Breakingviews prefer to put a number on the odds of survival rather than extinction of the euro. Let’s say there’s a nine out of 10 chance that European monetary union will weather the storms of 2012 and beyond. Then the big question becomes, “How much will it cost, and how long will it take, to nurse the euro back to full health”.

Stateside, meanwhile, it is election year, and Barack Obama has a fight on his hands to stay in the White House. Financial markets will be on alert for swings in the presidential race and in the make-up of the new U.S. Congress. It is not just about the winners, but also about how successfully the world’s largest economy will deal with its budget gap and political gridlock.

Financial firms are likely to be under severe stress, with second-tier banks especially challenged. On both the sellside and the buyside of financial markets, it’s going to be tough. Investment banks may have to alter their business models and adapt to changes in customer demands, regulation, and capital requirements. M&A deals could be thin on the ground – but Chinese acquirers may prove the exceptions.

For investors, 2012 might be both good and bad. Sustained low stock prices might make it another classic year to accumulate stocks. It does not follow, however, that markets will rise. If euro-related fears persist, global equity prices may stay at basement levels. Despite some institutions’ faith in them, hedge funds could struggle, again, to deliver decent returns. And in the worst case a portfolio for the paranoid, consisting of hard, portable assets, could prove the most valuable.

Planet finance will give us quirky stories in 2012, and Breakingviews columnists will look at the important business, economic and financial stories from all angles. This, in fact, is how our collection of predictions for 2012 seeks to set the financial agenda: from the bright side, the dark side, Stateside, the buyside, the sellside – and the flip side.


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