Fund management company Fidelity yesterday said that there are still no signs of economic recovery at the moment. It added that it is clueless about how effective the stimulus packages could be.

"After a difficult 2008, next year promises to be no easier for investors. Global growth is slowing sharply due to the broadening credit crunch and a number of countries may face recession in 2009. Markets are likely to remain extremely volatile as investors weigh up bad news on the economy against an unprecedented array of central bank and government stimulus packages," Trevor Greetham, an investment strategist at Fidelity Funds, said.

Fidelity, which takes a more defensive approach toward emerging markets equities, said it is looking for signs of recovery driven by the pick-up of house prices in the meantime.

Greetham pointed out that the mainland's economic growth has slowed significantly due to sluggish exports. But the government's 4-trillion-yuan stimulus package may partly alleviate this problem.

However, he expected more factories to close down around the Chinese New Year.

"At some point, though possibly not next year, reflation could move on to full-blown recovery and a sustained bull market in equities. For me to become bullish, I will need to see signs that policy ease is taking effect, banks are lending again and bargain hunters are coming in to support property prices," he said.

Policymakers have been spending most of 2008 worrying about inflation. However, the possibility of deflation is now becoming their greatest fear, said Greetham.

"The collapse in commodity prices has seen the global economy move decisively from 'stagflation' to 'reflation', an environment characterized by weak activity and falling inflation," he said.

Looking forward, Greetham expects the coming three to four years to be inflation-free due to the economic downturn and commodity prices may remain under downward pressure as industrial activity contracts and excess capacity rises.

The residential property market is likely to continue to fall, though the rate of decline will slow as the impact of lower interest rates begins to be felt.

Commercial property may continue to be affected due to a credit shortage as banks rebuild their balance sheets.

However, the market is discounting a very poor outlook and property's sensitivity to interest rates could make it one of the next sectors to respond to stimulus, he added.

(HK Edition 12/10/2008 page2)