Andrew Webb: Blockbuster uncertainty to continue

When London was awarded the Olympic Games in 2005, I looked forward to 2012 in the same way a child does Christmas. But having read countless dire forecasts for the year ahead, the first week of January felt like waking up on Christmas morning with a hangover. Anyone who has stuffed their turkey with a sore head and dry mouth will know that Christmas loses its shine when you are not in the mood.

It seems that the greatest show on earth will be overshadowed by sequels to last year’s blockbusters – austerity, the slow destruction of the euro and a spluttering below-par economic recovery. Last year’s cycle of hope and fear will continue while eurozone policymakers dither before eventually moving in the right direction as the market cattle-prod sparks them into action.

This environment will be heavy going for investors; like running the Olympic steeple chase wearing mud-filled Wellington boots.

The big worry is that this is one of the more optimistic outcomes. The worst-case scenario is that in 2011 we were merely circling the drain and that this year we disappear down it. This situation could be triggered by Europe’s debts causing the banking system to freeze and liquidity to dry up; the European Central Bank failing to support the market through the provision of liquidity or direct lending; and ultimately the weakest and strongest eurozone economies parting company. Doomsayers could liken the eurozone economy to a satellite hurtling through the atmosphere to earth with bits being stripped off as it falls.

Given that the whole world is transfixed by the eurozone crisis and now understands the economic and systemic implications of a messy conclusion, how big an impact it could make when it lands brings everyone out in a cold sweat.

This outcome would make the Wellington steeplechase look like an egg-and-spoon race. The nightmare scenario would be like running an alpine marathon wearing a suit of armour filled with fast-setting concrete. If you have quickly dismissed this nightmare as high-risk but low probability event, remember how many times we crossed firmly-drawn lines in the sand last year as unthinkable events became distinct possibilities.

But when conditions are right, markets have the capacity to surprise investors in exactly the same way as some athletes will for two weeks in the summer. Equity income could turn out to be one of the sectors that puts in a performance in 2012 as surprising and rewarding as Dame Kelly Holmes’ at the 2004 Athens games.

In times of uncertainty such as these, companies that are producing strong profits and sharing them with investors through high and growing dividends look attractive.

The types of company that fall into this category are large multinationals that have the potential to grow regardless of the health of the economy in any one particular country or region; that have a history of paying a strong and growing dividend; and that are reasonably priced. High-yielding stocks are to be found all over the world because in every major market in the world, yields are above their 15-year trend.