13th April 2011

M&G: Market outlook Q2 2011

Summary of outlook for the second quarter of 2011

• Market participants appear to be changing their perceptions of risk
• Volatility is likely to persist in all asset classes
• However, there is significant compensation available in selected risk assets

Developments so far in 2011 have not prompted us to change our assessment of long-term valuation signals but there are suggestions that perceptions of risk are shifting among market participants. Crucially, while the risk aversion that has been part of the investment landscape since 2008 is still in evidence, the surprising resilience of global risk assets and the divergence of behaviour across markets suggest that valuation is having a more significant influence on pricing than was the case during the indiscriminate 'risk on/ risk off' environment of 2009 and 2010.
This raises a number of important issues from an asset allocation standpoint.

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