[January 08, 2013]

Prudential experts: Outlook brightens for equity markets in 2013, investors continue search for yield in debt markets

Prudential market experts are optimistic about the prospects for the financial markets in the coming year as growth continues in the U.S. and global markets stabilize. They outlined their views at Prudential Financial, Inc.'s (NYSE:PRU) 2013 Global Economic and Retirement Outlook briefing in New York today.

A replay of the outlook briefing is available on Prudential's newsroom.

Ed Keon, managing director of Quantitative Management Associates, said that distance from the recent financial meltdown has given markets and the economy time to heal, leading to slow, but steady growth in 2012. He expects the pace of growth to pick up in the U.S. and globally in 2013, citing a healing labor market and more vibrant life in home prices, auto sales and other economic measures.

"The title of an old Rolling Stones song, 'Time is on My Side,' might help describe the global economy and equity markets in the last few and perhaps the next few years. As more time passes since the financial meltdown without another acute crisis, the healing of personal, financial and corporate balance sheets, incomes and psyche has proceeded," Keon said. "Growth has been slow, but steady, and we think it will pick up in the U.S. and globally in 2013. Perhaps in 2013 Washington DC will be more like professional sports officials, guiding and managing the action of the economy rather than dominating the economy. Most folks find this hard to believe, but the U.S. equity market has delivered 15 percent returns in 2012, and has averaged 10 percent returns over the past few years despite some ups and downs. That looks like a bull market to us, and we think it will continue in 2013."

Quincy Krosby, a Prudential market strategist, noted that the search for yield will remain global with investors seeking opportunity in emerging market bonds, global high yield and Eurzone debt. She sees positive trends in Asia such as economic stabilization in China that is expected to increase demand for commodities, benefitting U.S. and European-based global industrial companies. She also believes continued quantitative easing in Japan will keep the yen weak relative to other currencies, which should benefit Japanese exporters. Still, she says inflation remains a concern.

"The second half of 2013 could have global investors discussing impending inflationary pressures. With over 325 fiscal and monetary measures of the last 15 months, and surely more to come, inflation will begin to assert itself, most likely in the emerging markets," Krosby said. "If the U.S. can find the right balance between austerity and growth, job creation should pick up markedly in the second half, bringing with it higher wages, credit demand and inflation, albeit a modest uptick. Fingers crossed that we reach the point where we are concerned with inflation, as long as it's associated with growth. But that's a story for the latter part of 2013. Now we just have to get through the first two quarters."

John Praveen, chief investment strategist for Prudential International Investments Advisers, also expects continued growth in 2013, noting that central bank liquidity and improving risk appetite should enable global stock markets to post 10-15 percent gains with several global stock markets, including the U.S., likely to reach new all-time highs.

"Global equity markets are likely to post further gains in 2013 driven by abundant central bank liquidity and low interest rates, further rate cuts and expansion of quantitative easing and central bank asset purchases, continued stabilization in the Eurozone and easing risk aversion and modest GDP rebound in emerging economies and in the U.S.," Praveen said. "Reasonable valuations and an expected earnings rebound after weakness and disappointment in 2012 should also contribute to global equity market gains in 2013."

In the fixed income markets, Michael Lillard, chief investment officer of Prudential Fixed Income, agrees investors will continue the search for yield and said although 2012 appeared bland on paper; it actually proved to be a bright year for the spread sectors. He believes the demand for bonds will continue in 2013.

"The combination of low growth and inflation, combined with high demand from pension funds, retail investors and of course, the Fed, was a formula for low Treasury rates, and declining spreads across fixed income sectors in 2012," Lillard said. "In a world where demand for bonds remains strong, but developed country de-leveraging both constrains growth and reduces supply, I believe the overarching theme in fixed income will continue to be the search for yield."

George Castineiras, senior vice president of Total Retirement Solutions at Prudential Retirement, agrees with the optimistic assessments of Prudential's market experts. "I am upbeat about the growth opportunities for the retirement industry in 2013 and beyond mainly due to favorable long-term demographics and the more than $18 trillion in retirement assets that will be put into play over the next two decades," Castineiras said.

Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $1.005 trillion of assets under management as of September 30, 2012, has operations in the United States, Asia, Europe, and Latin America. Prudential's diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the U.S., Prudential's iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit http://www.news.prudential.com/.

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