"It's a good year to sub-contract risk," says Moad Toumani. JPMorgan's mouthpiece in the UAE. And there in a nutshell is this week's conclusion. Before ending the shortest-ever article, lets fill in with some substance.

To be fair to Toumani, he was actually listing JPMorgan's five "big themes" for 2010; I've simply extracted the one I thought was most interesting. For record, then, the five were: the macro-economic divergence of economies — which is the point that leads to our conclusion: a good year to outsource management. A year of low interest rates; a year in which China heats up; a year of tremendous currency volatility, together with a year in which emerging markets will continue to outperform.

Back to our conclusion: a good year to outsource management: first up, Toumani reminds us that 2008 witnessed the new sport of synchronised diving, with only the depths of the dive changing. Year 2009 was one with a differing quality of recovery for different assets with most assets finding a rebound of some sort. For JPMorgan, 2010 will be a year of "turbulent prosperity", but as Toumani points out, it won't be as easy to pick out the winners and the laggards in 2010 as it was in 2009.

The JPMorgan slide captures the 2010 dilemma in a nutshell. In terms of current account positivity (essentially the difference between what a country earns and what it spends), and GDP growth; Spain, Greece and Ireland are clear anchors to "Team Europe" gaining any forward momentum, while the usual Euro economic heavyweights are also hardly shaping up as world-beaters. One reason why Toumani believes "the euro looks over-valued".

Sore thumb

Elsewhere, the "what we all know" growth areas of India and especially China, stick out like the proverbial "sore thumb", but India with a current account deficit. China's stats look like the only rose in the garden, significant growth predictions together with a healthy current account surplus. Toumani puts this down to a credit boom in China underpinned by government stimulus. Add-in the massive country to town urbanisation and the increased consumerisation of the Chinese juggernaut, and it is easy to see why the Chinese economy has such massive forward propulsion.

Two aspects of the Chin-ese surge are worth recording. Firstly, JPMorgan do not see China as necessarily "plain sailing" and they expect significant "policy tightening" around the middle of the year. Secondly, what the Chinese consumer buys doesn't always have the "Made in China" badge on it, your Starbucks, and your KFC will also benefit providing the middle-of-the pack US economy with an element of economic "pull".

Bottom-line, in a year where performance is probable but not easy-to-spot, global professionally managed funds are going to provide one of the more logical routes to the management of the riskier assets and certainly to equities.

If the "first up" supporting comment to our conclusion is the greater divergence of global economies in 2010 compared to 2008-09; the "second-up" issue to bear in mind is the relative sizes of world equity markets. The MSCI Global equity index is still around 40 per cent weighted to the US economy. For headline-only readers there may be a tendency to see the current world order as entirely Asian. This would be a huge mistake. The global economy is simply on the way to becoming Asian/Eastern influenced.

The journey has started the destination some-way off.

With the ETA some-way off for Asia, but with investors standing at the platform waiting, its worth noting that, while waiting, you had best not ignore the fact that the US economy is still the only global giant.

A global professional fund manager is highly unlikely to miss this point. With INCH (India and China) still below 10 per cent of global equity market value (by capitalisation), then the word "balance" comes to mind.

Middle East

JP Morgan's second slide provides the impression that the world of Emerging Markets is still reasonably well-priced even after the 2009 recoveries. Compared to the fund manager rumour-mill that suggests that some of the mature markets might be over-priced, then the Emerging Markets as a collective looks well-placed, and has JPMorgan's endorsement that Emerging Markets will out-perform the mature-market led Global indices.

Interestingly, Toumani believes that one of the better "smaller markets" has to be the Middle East and the UAE, on the basis of where prices are today. Toumani makes it clear that Morgan's see markets in three general leagues: the mature markets (US, Japan and Europe); the BRIC-Asia-led Emerging Markets and the "Frontier Markets" in which the UAE/Middle East falls.

Which takes us back to the point: if the year 2010 is going to be one in which mature market performance is awkward to predict, and characterised by diverging performance; plus, with the probability of another year of Emerging Market out-performance; plus, with opportunities arising in the Frontier Markets — the case for professional outsourcing of risk-management has not been as strong as it is today for some time. Solutions to this dilemma come from "balanced" portfolio managers; risk-adjusted multi-manager funds and the usual stack of "global fund managers".

Beware however, the difference between fund managers simply tracking the MSCI Global index and those trying to manage into the top performing areas!

 

The writer is Chairman of Mondial Financial Partners