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Smaller economies may outpace larger ones in '12

One of the world's largest asset managers believes small centers such as Singapore and Hong Kong will grow significantly faster this year than large developed economies in Europe, the United States and Japan.

As these big economies continue to grapple with the prevailing financial turmoil, their smaller counterparts will do better thanks to their fiscal strength and better growth prospects, said Russ Koesterich, global chief investment strategist of BlackRock's iShares at a media briefing.

He said these small centers appear healthiest and fundamentally stronger than many large developed nations.

BlackRock has overweight views for the Singapore and Hong markets in the near term. In the long term, it is bullish on five smaller developed markets — Canada, Australia, Singapore, Switzerland and Hong Kong — which it calls the “Cassh markets.”

“The larger developed economies are running out of fiscal and monetary ammunition and their debt levels are unsustainably higher,” he said.

He added that many of the smaller developed economies have emerged from the great recession in much better condition with “faster growth, better fiscal position which gives them more wherewithal for stimulus if necessary and are less burdened by debt.”

“Smaller developed countries have recovered quicker than their larger counterparts. The Cassh markets are expected to grow 3.5 percent in 2012, twice the growth rate of the United States, Europe and Japan,” he said.

The global economy is expected to muddle along this year with slow but positive growth.

“Absent a worsening European crisis, we hold a positive longer-term view of equities, particularly relative to bonds.

“We believe investors should take advantage of historically low-equity valuations due to risk aversion in 2011 and increase allocations to smaller developed countries and emerging markets.”

However, he added that the odds of another global recession — the result of policy mistakes in Europe as well as the U.S. — have risen in recent months from a year ago. “We expect Europe to face at least a modest recession where GDP will contract between 1 and 2 percent. Europe represents the greatest risk to the global economy,” he said.

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