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INVESTMENT OUTLOOKInvestment OutlookMany of the risks that spooked investors last year have abated. The euro zone,while yet to regain health, has now a lesser likelihood that some of its memberswill default on their debts. The euro zone crisis seems to have faded into thebackground. Instead, investors are keeping a close watch on the developmentsin the world’s three other largest economies. Let us take a closer look at them.US - World’s Largest EconomySince the start of the 3 rd round of Quantitative Easing by the US Federal Reserve(Fed) in September last year, investment markets have soared. Then in May thisyear, when the Fed hinted that it is likely to ease up on its stimulus programme,investors panicked and took fl ight when faced with the prospect of the end ofcheap liquidity. Stock and bond markets around the world corrected sharply inresponse.The irony is that the reason for the Fed wanting to scale back quantitative easingis because there are clear signs that the US economy is improving. Consumerspending is holding up and housing market is recovering. There is also a steadydrop in the unemployment rate. The steady pace of hiring points to the increasingstrength of the labour market and the economy.In perspective, the intended tapering of quantitative easing is a positivedevelopment. It shows that the US economy is healthy enough to recover on itsown two feet, without the Fed injecting more liquidity into the system. However,investors fi nd that diffi cult to swallow as they have been riding high on a marketrally fuelled by easy money.Investment OutlookHow investment markets will pan out in the next few months will depend verymuch on the timing and manner in which the Fed weans investors off easymoney. There could be short term volatility as jittery and overleveraged investorsover-react.China – World’s No. 2 EconomyTo safeguard its fi nancial system over the longer term, China is curbing credit inits shadow banking system. In the process, this is threatening to destabilise theeconomy at least in the short term. Growth is thus curtailed as businesses arefi nding it increasingly diffi cult to get loans.2