Emerging Markets, Corporate Debt, Absolute Return Cited as Possible Winners if Slow Growth Persists

NEW YORK and LONDON, December 13, 2012 — Markets in 2013 are likely to be heavily affected by government policies and politics, according to the Global Market Outlook from BNY Mellon Investment Management.  Policy makers will be faced with the challenge of maintaining stability, while attempting to stimulate economic recovery, the report said.

The outlook is the annual summary of insights from BNY Mellon's investment boutiques, focused on the important investment trends expected in the coming year.

Among the key factors that could determine market direction is whether European policy makers can resist domestic pressures and develop coordinated actions to tackle the region's main challenges, said Ivo Batista, portfolio manager from the BNY Mellon Investment Strategy & Solutions Group (ISSG), which participated in the report.  He added, "Also of high importance is whether the divided U.S. government can avoid the fiscal cliff and take actions that protect businesses and consumers from a wave of tax rises and government spending cuts."

If the eurozone and the U.S. can surmount these problems, Batista said that investors are likely to take on more risk and send equities higher and safe haven bonds could suffer.  However, ISSG warned that failure to address these issues could lead to a spreading of the eurozone crisis and possibly send the U.S. into recession.

Most likely, though, ISSG said uncertainty will remain high in developed markets, leading to slow growth.  This could have a potentially positive impact on emerging markets equities, real estate, corporate and emerging markets debt and absolute return strategies, said Batista.

Another concern about the impact of policy was voiced by Newton, one of the BNY Mellon investment boutiques participating in the Global Market Outlook.  "When policy is deliberately designed to distort markets, it may be more challenging to identify attractive valuations," said James Harries, investment manager, global funds, Newton.  "Therefore, we believe it is correct to remain cautiously positioned."

In this environment, Newton believes investors favor equity investments in businesses with high-quality cash flows and strong dividends.

One factor that will help those investing in emerging markets is the rapidly growing size of the emerging markets corporate debt market, according to Insight Investment, another BNY Mellon investment boutique participating in the outlook.

"One of the main reasons for investing in emerging market government bonds over the last 20 years has been that improving credit quality would lead to yield compression in relation to developed markets," said Colm McDonagh, head of emerging market fixed income, Insight Investment. "We believe that this structural shift will be replicated in the corporate bond markets."

At Alcentra, another BNY Mellon boutique participating in the Global Market Outlook, sub-investment grade corporate credit appears attractive.  "We believe that loans and bonds issued after the financial crisis that have proven resilient in the face of modest global growth can offer attractive yields with only a modest risk of default-related loss," said Simon Perry, managing director, business development, Alcentra.

Alcentra said investors seeking higher returns might find opportunities in stressed and distressed credit.

Overall, the BNY Mellon Global Market Outlook notes that investors increasingly are focused on managing risk, ranging from counterparty and liquidity risk to systemic risks such as inflation and interest rate fluctuations.  In the relatively low-return environment that is likely to characterize the coming year, minimizing losses through effective downside protection will be an important consideration, according to the report.

Alcentra is an asset management and investment group focused on sub-investment grade debt capital markets in Europe and the United States. The group has an investment track record that dates back to 1998 and spans across 48 separate investment funds totaling approximately $15.1 billion. Alcentra is more than 97.2 percent owned by BNY Mellon and 2.8 percent owned by the employees. 'Alcentra' refers to both Alcentra Limited and Alcentra NY, LLC. Assets under management include assets managed by both companies. More information can be found at www.alcentra.com.

BNY Mellon Investment Strategy and Solutions Group (ISSG) is a division of BNY Mellon Investment Management. In Asia, Europe, the Middle East and Africa, the ISSG offers products and services, including investment strategies that are developed by affiliated BNY Mellon Investment Management investment advisory firms, to clients through BNY Mellon Asset Management International Limited. In the US, ISSG is part of The Bank of New York Mellon.

Insight Investment is a leading asset manager focused on designing investment solutions to meet our clients' needs. Launched in 2002, Insight is responsible for assets under management of over £187bn ($302bn) across absolute return, fixed income, liability-driven investment, cash management, multiasset and specialist equity strategies. Insight's assets under management are represented by the value cash securities, liability benchmarks, and other economic exposure managed for clients. More information about Insight Investment can be found at www.insightinvestment.com. Insight Investment does not offer services in the U.S.

Newton is a London-based global asset management subsidiary of The Bank of New York Mellon Corporation and part of BNY Mellon. With assets under management of more than £49 billion, including assets managed by Newton Investment Management Limited as dual officers of Newton Capital Management Limited and The Bank of New York Mellon, Newton's group of affiliated companies provides a broad range of award-winning investment products and services to individuals, pension funds, charities and corporations. News and other information about Newton is available at www.newton.co.uk or follow us on Twitter @NewtonIM.

Newton refers to the following group of affiliated companies: Newton Investment Management Limited, Newton Capital Management Limited, Newton International Investment Management Limited, Newton Capital Management LLC and Newton Fund Managers (C.I.) Limited. Assets under management include assets managed by all of these companies except Newton Capital Management LLC, which provides marketing services in the U.S. for Newton Capital Management Limited. Except for Newton Capital Management LLC and Newton Capital Management Limited, none of the other Newton companies offer services in the US and Canada. Newton Capital Management Limited is registered in the United States as an investment adviser under the Investment Advisers Act of 1940.

BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.4 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $27.9 trillion in assets under custody and administration and $1.4 trillion in assets under management, services $11.6 trillion in outstanding debt and processes global payments averaging $1.4 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com or follow us on Twitter @BNYMellon.

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