Christine St Anne: We caught up with City Index�s Peter Esho backstage at a recent investor briefing. In the first part of our Market Insight series, Peter gives us his views on the key risks for the new financial year.

Peter, thanks for your time today.

Peter Esho: Thanks for having me.

St Anne: Peter, if we could just begin with some of the macro issues. First of all, of course, Europe, how do you see that playing out now for the next financial year?

Esho: Well, the past year was very - extremely tough for the European debt situation. We really saw the conversation around solvency issues emerging. The European Central Bank was quick to enter the market and really address liquidity concerns. It's been a rough road I think in Europe and I think the outcome has been the Europeans are waking up to the fact that austerity on its own is no longer the solution. So we've seen a shift towards some more appropriate strategies around growth.

How they'll achieve that, we're unclear. But what was very decisive was the way that the European Central Bank stepped in to quarantine liquidity issues, and I think that was very important. The market still has not overcome the cost of that or fear. We continue to see Spanish yields, for example, Italian yields at elevated levels. But I think, at least there's a commitment there that the European Central Bank will be very firm to step in and quarantine liquidity issues, and I think that's going to be important for the next financial year. Investors will wake up to the fact that perhaps some of the worst news in Europe is behind us, and going forward, it's all about workable solutions.

St Anne: Well, with what's been happening with Europe, what about China, Peter, that's being playing on a lot of investors' minds, and resource companies are seen to be hit with those concerns. Is the slowdown a real issue in the next 12 months?

Esho: Not really, I think, what we've seen in China is a very well engineered slowdown in the economy. Six months ago everybody was worried about the Chinese property market collapsing, the price of iron ore collapsing, and sure, the price of iron ore has come from $190 odd per ton to around $120, $130, perhaps it can fall slightly more. But if you take recent Chinese data, we basically have a reduction in the rate of inflation well below the People's Bank of China�s official rate now 2.2% as opposed to 4%. You�ve got a trade surplus, which was $10 billion in excess of what the market was expecting, $31 billion trade surplus.

You've got the Chinese economy still managing to post double-digit export growth numbers, and you got Chinese GDP growth number that came at 7.6% year-on�year, which was in line with market expectations. So, what the Chinese have managed to achieve is fantastic. They've managed to reduce the rate of inflation from in excess of 6% to 2%, they've managed to maintain a respectable rate of growth at 7.6%.

They've managed to rein in the steel industry without the iron ore price for example collapsing for the Australian producers. It's been a very good balance, and I think what we will see in the second half of 2012 is a resumption in growth strategies in China. They've now reined in the economy to where they wanted it, and I think they have the capacity now to engineer more growth.

St Anne: Now Peter, if we could come back to local issues, what about sectors in the Australian market that are going to be best positioned in the near future. Is it still going to be all about defensive?

Esho: I don't think so. I think, the defensive stocks have been a very crowded space. There is the ability to place the market for those key significant risk exposures, so we think the riskier assets will perform better.

St Anne: Peter, thanks so much for your insights.

Esho: Thanks, Christine.