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Johannesburg - The world economy has not yet recovered and many consumers, companies and even countries are unhealthy from a debt perspective, Investec Asset Management said on Monday.
"If Dubai has taught us one thing, it is to reinforce the point that although healing, the world is not fixed," director Jeremy Gardiner said in a statement.
However, economic data was surprising on the upside and analysts were upgrading their forecasts to adjust for a faster than expected recovery.
Looking ahead to 2010, Gardiner said most South African portfolio managers believed that central banks had done what was needed to fix the world and should succeed.
"Their efforts, coupled with various disinflationary forces, will result in mild inflation going forward," he said.
Consumer price inflation in South Africa should reach a low of around 4.5% by June and then remain within the SA Reserve Bank's target band for the rest of 2010, he said.
Gardiner said that US depreciation had run its course and that gold's rise would be slowed.
"Moderate inflation, an oversold US dollar and a recovering world should theoretically slow gold's rise, however it is a good hedge against something going wrong and it is the only 'currency' that central banks can't print."
Although emerging markets were going to see better growth than the developed world, they had run very hard on a relative basis and better value might be found in global equities, which had suffered ten years' worth of poor performance.
"In particular global multinationals with exposure to emerging markets will benefit," he said.
Cash had gone from being "king" to "trash", as central banks were likely to keep rates lower for longer, Gardiner said.
"Equity returns should be positive and certainly better than cash... therefore, equities remain the place to be, but more through lack of choice than anything else."
Turning to the local currency, he said while current rand strength was seen as unsustainable, investors were warned not to expect too much weakness either.
He added that in the fixed interest space, the sweet spot lay in corporate bonds.
"Although the stimulus has increased the risk of bubbles, this stimulus probably won't be withdrawn in a hurry, so therefore risk assets can probably be enjoyed for some time to come," Gardiner said.
- Sapa
