Harbour Commentary: Reflation with risk

And yet as we discussed last month the most significant change in the global environment has been the introduction of the Long Term Refinancing Operations by the European Central Bank (ECB). Markets were slow to react to this sea-change, but across the board indicators of European stress have reduced, allowing markets to focus on fundamental trends.

In our opinion, market positioning may continue to give momentum to equity markets, particularly cyclical sectors not impacted by more obvious secular and structural headwinds.

Whereas in 2009 all cyclical stocks performed strongly - we think 2012 may see significant divergence in performance across sectors as investors are more focussed on medium term prospects in a world still impacted by deleveraging, government austerity, and changing consumer habits led by the internet.

Our interest and exposure to cyclical companies in the portfolio is strengthened by three factors: