CC-BY-SA-2.0, FlickrFoto: Craig Sunter. AXA IM: "Secular Stagnation is an Over-rated Concept"
Research & Investment Strategy of AXA Investment Managers team publishes its prospects for next year focusing not only in 2017, but choosing a theme and medium-term approach to examine the thesis of a secular stagnation, the normalization of economic growth and inflation. They review in turn the root causes of the lack of demand, the low productivity growth based on the absence of technical progress, the drivers of the saving gluts and the end of globalisation. Ultimately their conviction is that secular stagnation is an over-rated concept.
The global lack of demand is fading and can be addressed by an appropriate mix of monetary and fiscal policies. Monetary policy will never be the same as before the Global Financial Crisis: the extension of the tool box is there to last. Fiscal policy has to play its role where possible and this is particularly the case in the euro area, where some, but not all countries, have fiscal space.
In the medium term, the saving glut is set to resorb, while productivity will regain some strength and may even be boosted by the digital economy, especially if structural reforms provide a tailwind. They dispute the idea that technology is “everywhere but in the data” and believe the countries investing most heavily in the digital economy will benefit extensively.
Taking into account their growth estimates and modelling the term premium, AXA IM estimates that US long-term rates should return to 3.4% in the coming five years. This is certainly far from current levels, implying a multi-year normalisation that should radically affect asset allocations.
Given that previous episodes of rising rates have scarcely been smooth operations, they also take a deep dive into financial market stability analysis. The key ingredients of another financial crisis are mostly absent at the current juncture but certain elements may be a cause for concern, such as stretched fixed income valuations and constrained market liquidity.
De izquierda a derecha, Jean-Luc Hivert y Laurent Jacquier Laforge. Fotos cedidas.. La Française Reorganises its Securities Fund Management Division
Over the last five years, La Française has experienced strong growth through its expansion and through the internationalisation of its expertise, thanks to its strategic partnerships that have allowed the group to strengthen its skills.
So as to create synergies between the various group affiliates and divisions, La Française has reorganized its Securities Fund Management Division.
Accordingly, under the leadership of Pascale Auclair, Global Head of Investments, Jean-Luc Hivert and Laurent Jacquier Laforge are heading the two divisions of expertise: “Fixed Income and Cross Asset” and “Equity”, respectively.
Jean-Luc Hivert, with nineteen years of asset management experience, becomes CIO Fixed Income & Cross Asset. He is responsible for €30 billion in assets under management and heads a team of twenty-six experts. Accordingly, he is entrusted with the Group’s Cross Asset management, discretionary portfolio management and targeted management, for which Odile Camblain-Le Mollé holds operational responsibility. Jean-Luc joined La Française des Placements in 2001. As Co-Head of Bond Management, Jean-Luc innovated and contributed to the launch of the fixed maturity fund concept, one of the key differentiation factors of La Française. He holds a specialised post-graduate diploma (DESS) in Finance from Université Paris VI (1996), a MIAGE (Computer science applied to business management) degree (1995) and a MASS (Applied mathematics and social sciences) degree from Université Paris XII (1993).
Laurent Jacquier Laforge, with more than thirty years of experience, becomes CIO Equities Global. He is responsible for the entire SRI Equity range offered by La Française, small caps management and the monitoring of partnerships, such IPCM, an extra-financial research firm, Alger and JK Capital Management. For several years, La Française has been building strategic partnerships with specialised foreign management companies. As group CIO Equities Global and in the interests of investors, Laurent Jacquier Laforge will identify potential collaborations on products and research synergies. Laurent joined La Française in 2014. Since then, he has transformed the range of funds offered by La Française Inflection Point by incorporating the philosophy of Strategically Aware Investing (SAI) which includes an additional responsible dimension and was developed by IPCM, the London research firm with which the group has established a strategic partnership. Laurent Jacquier Laforge holds a DESS-DEA postgraduate degree in Economics from Université Paris X in Nanterre. Laurent is a member of the SFAF (French Financial Analysts association).
CC-BY-SA-2.0, FlickrPhoto: Elite Fuegos Artificiales
. 2016, a Good Year for Hedge Funds
Markets closed 2016 on the right foot with the way cleared from the Italian wildcard. The post-Trump election rally extended to December, benefiting DM markets globally while EM markets lagged. The upbeat tone also echoed the global agreement to scale back oil production. The surge of Brent to $56 supported the US High Yield segment.
Meanwhile, and according to Lyxor AM´s monthly barometer, the fixed income space continued to witness the great divergence in monetary policies. The Fed hiked rates by 25 bps mid-month while the ECB delivered a dovish tapering: it extended the program until end-2017 but reduced monthly purchases. Yields spread between Treasuries and German Bunds hit record highs. That led to further strengthening of the USD vs. major currencies while gold sold-off.
“In 2017, we expect less monetary accommodation, more fiscal boost and more policy ruptures to support rising rates and inflation. That would result in greater asset prices dispersion and more fundamental pricing, especially in the US where the process is more advanced. These factors would benefit Macro managers. However, the strategy is likely to remain constrained by elevated political uncertainty, prompting funds to be either overly hedged or endure volatility in their returns. We maintain a slight overweight on the strategy but we expect rising fund performance differentiation.” said Jean-Baptiste Berthon, Senior Cross-Asset strategist at Lyxor Asset Management
The risk-on environment supported hedge funds, with the Lyxor Hedge Fund Index up 1%. Global Macro delivered strong returns thanks to their long on equity markets and USD crosses. On the flip side, L/S Equity funds lagged due to the underperformance of Neutral funds.
Global Macro funds continued to gain traction and confirmed their year-end recovery. Managers benefited from the strong rally in European equities past the Italian referendum, while the depreciation of the EUR and GBP against USD added to gains. Overall, Macro funds’ positions became more homogeneous in December. Most of them bet on the reflation trade in Europe (long equities, short bonds and short EUR), while playing out rising inflation in the US and a stronger dollar (long bonds and USD, but short equities). In that regard, the divergence that took place in the fixed income space proved costly for portfolios this month. Finally, funds caught up the swift jump in energy but the sell-off in gold was detrimental.
In December, CTAs regained a meaningful chunk of the lost ground. The negative correlation between equities and bonds was supportive for models as they slashed their long fixed income allocations and re- weighted equities. Long USD vs. EUR and GBP was also a strong driver of returns. The commodity bucket remained overall mixed, but their long stance on energy paid off.
Special Situations outperformed within Event Driven, supported by the year-end rally. Sector wise, they benefited from core investments in Basic Materials, Consumer Non-Cyclicals, Financials and Technologies. Merger Arbitrage funds benefited from spread compression across a number of deals. The completion of the LinkedIn/Microsoft deal on Dec 8th paid off. In aggregate, managers closed the year cautiously exposed, with sizeable exposure to Consumer Non–Cyclicals and Technology. Heading into 2017, higher US corporate activity would foster Event Driven. Prospects of deregulation in some industries, corporate tax cut and cash repatriation would offer fresh opportunities for the strategy.
L/S Credit Arbitrage enjoyed healthy returns and closed 2016 up 5.4% with a very low volatility. Credit markets were supportive, in particular in the High Yield segment. Additionally, fixed income funds delivered healthy returns as well. Relative value investors navigated well the rising bond yield environment.
L/S Equity strategy delivered poor returns in December, but this hides disparate returns across regions and styles. On one hand, the longest biased funds continued to extend gains this month, and closed the year up 4.5%. Long books were the main source of alpha, especially within the financial sector. Some variable biased with a value-tilt recorded strong results. On the other hand, Asian and European Market Neutral funds were hardest hit by sector rotation. Overall, L/S Equity funds dramatically increased their positions towards Cyclicals vs. Defensives. They moderately increased their net exposure to equities throughout the month.
CC-BY-SA-2.0, FlickrPhoto: Pedro Ribeiro Simões
. Investor’s Attention Shifts to Passive in European Equities
Very disappointing results of active European equity fund managers in 2016 may have caused an acceleration of the shift into passive solutions, says www.fundinfo.com.
Active European equity managers got wrong-footed on sector allocation in 2016, adds the website. As ifund revealed this week, only 8% of European equity managers outperformed the MSCI Europe NR net of retail fees and just 24% did so gross of fees.
This may have caused an acceleration of the shift into passive solutions: while one year ago active European equity funds accounted for about 75% of all document views this number has most recently collapsed to 54%. This shift was most pronounced within public channels for German investors but was also remarkable for Swiss, Italian and UK investorss.
Andrew Balls, courtesy photo. PIMCO Launches Global ESG Investment Platform
PIMCO, a leading global investment management firm, has launched a dedicated Environmental, Social and Governance (ESG) investment platform globally, offering a range of fixed income solutions to investors seeking attractive returns while making a positive social impact. As part of this effort, the PIMCO GIS Global Bond ESG Fund has been launched in EMEA.
PIMCO applies a robust framework across its ESG solutions, delivering maximum impact for investors. This framework includes three key elements: exclusion, evaluation and engagement. Companies with business practices that are misaligned with sustainability principles are excluded from PIMCO’s ESG portfolios. Companies are also evaluated on their ESG credentials and those with best-in-class ESG practices are favored in these solutions. Critically, the team engages collaboratively with companies, encouraging them to improve their ESG practices and influence long term change.
The newly launched PIMCO GIS Global Bond ESG Fund invests in a range of sovereign and investment grade corporate bonds from around the world. The fund aims to maximize total return whilst favoring issuers with best-in-class ESG practices and those that are working to improve them. The fund is managed by a team led by Andrew Balls, Managing Director and CIO of Global Fixed Income and Alex Struc, Portfolio Manager co-heading the ESG initiative at PIMCO.
In addition, PIMCO has enhanced two of its socially responsible funds in the U.S. to incorporate a wider range of ESG considerations into the investment process. These funds are managed by a team led by Scott Mather, Managing Director and CIO for US Core Strategies and Alex Struc.
Andrew Balls said: “For many investors, screening out undesirable investment categories isn’t enough anymore; they want to use their investments to promote change in the world. Our ESG platform provides the tools to do that without compromising on returns.”
Alex Struc said: “Historically, this type of strategy has been pursued by equity investors but we firmly believe that engagement as a debtholder is equally important. Across the vast fixed income universe, small change can have an enormous positive impact.”
CC-BY-SA-2.0, FlickrSasha Evers, courtesy photo. Sasha Evers Will Lead the Latin America and Spanish Business of BNY Mellon
BNY Mellon Investment Management (BNY Mellon IM), the world’s largest multi-boutique asset manager with 1.7 trillion dollars in assets under management, announced that Sasha Evers, Managing Director for Iberia, expands his role to lead the Latin America business.
Antonio Salvador Nasur will continue in his regional role based in Santiago, Chile, reporting directly to Sasha Evers, based in Madrid, Spain.
Under Evers’ leadership BNY Mellon IM opened its Madrid office in 2000 to successfully grow BNY Mellon IM’s presence across Iberia (Spain, Portugal and Andorra), where current assets under management are USD 3,537 bn (EUR: 3.730 m).
Sasha Evers, Managing Director of BNY Mellon IM for Iberia, said: “The Latin American region offers a strong long-term growth story for our business. I am looking forward to working closely with Antonio to further build upon our business in the region.”
Matt Oomen, Head of International Distribution at BNY Mellon Investment Management, commented: “While setting in stone our longer term distribution strategy to grow assets in Latin America, we saw many synergies between Iberia and Latin America. Sasha’s experience and leadership puts him in the best position to further grow our presence in the region, following his success leading BNY Mellon IM Iberia.”
Nicolas Walewski, who heads Alken, has been in Madrid recently. Courtesy photo.. “It’s Dangerous to Be Negative in Banks: We See Conditions for Greater Growth and Margins in Europe”
Everyone is aware that last year was a complicated one for the funds of Alken, Nicolas Walewski’s fund management company. His compliance and convictions for the cyclical sectors took their toll due to events such as Brexit, which penalized his funds. But the market has been turning around for months, and in 2017 things have begun to unfold differently: “Taking panic and redemptions in European equities into account, 2016 was a year for buying,” Walewski said recently during a presentation with clients in Madrid.
The fund manager considers that, after three years of “destocking” in companies, this year begins a new “restocking” cycle, in which firms begin to invest again… and Walewski points to these new investments, to the recovery of industrial activity, and to the fact that many industries are boosting their pricing power -in addition to the fact that American and Asian investors have returned to the European market only very marginally- as positive indicators for European Equities. “Companies have invested little, overall, there are no excesses globally, so there is no reason to be pessimistic,” he says.
On the contrary, there are numerous indicators giving him the go ahead for buying equity and selling fixed income and shares with a behavior similar to bonds. “We’ve seen years of better behavior in bond-like securities while cyclicals lagged behind,” he recalls, but the story will change. In fact, this rotation from the defensive to the cyclicals is already occurring in the markets and he advises: those investors who are underweight or negative in sectors such as banking will be motivated to rotate their portfolios.
“Value will offer better returns as rates rise,” he says, “with the higher rates, the 10-year profits will be reduced, so that the growth style will offer lower returns” and lose its appeal.
In fact, this story is now rewarding the fund manager’s loyalty to the cyclical sectors, which weighed negatively last year. Walewski is still strongly committed to them this year.
Opportunity in banks
Among these sectors, and although Alken European Opportunities is still underweight in the financial sector (it underweighs the insurance sector), the fund manager points out the opportunity in banks. Thus, in the face of recent negative factors such as regulation, higher capital requirements and QE policies (“good for the cycle but terrible for banks”), the fund manager now sees positive factors, such as Real Estate price recovery (the main liability of banks), the deleveraging of individuals and companies (which allows capital reinforcement), or greater clarity in the Italian banking system. “We see conditions for higher growth and higher margins of banks in Europe, which is positive for shareholders,” says the fund manager. Although there are still many entities that are not to his liking (which is why they have not yet overweighed the sector), Walewski considers that it is “dangerous to be negative in banks”.
Cyclical sectors
One of the sectors to which he continues to be strongly committed is discretionary consumption (with an overweight of more than 22% in Alken European Opportunities), especially because of his conviction in the automotive sector, where he is beginning to see greater investments and anticipates a strong rally. He likes names such as Peugeot or Renault: the fund manager considers the latter as “the Ryanair of the automotive market”, due to its attractive low cost offer to which investors have not put a price and taking into account the great business opportunity currently opening in this business segment. As a matter of fact, Ryanair is another one of his big commitments, due to its price, to its strong growth in Germany and to the improvement of its cost structure. He also likes the luxury sector, which has been recovering in recent months (fuelled by demand stabilization in China) and whose rally will continue, he says. He is also committed to Wirecard, or B & M Value Retail, which he considers to be one of the best operators in the British retail market and which has been severely damaged by Brexit, but which could be revalued by up to 25%.
In its European stock fund, the fund manager also overweighs the industrial sector, where he sees greater business volumes and increasing power to establish prices. He speaks of Leonardo, an Italian defense company -and a case of restructuring- as a good investment in an environment of strong demand for the sector, which could boost its price up to 30%.
Healso overweighs Information Technology and the materials sector, and points out the opportunity at Glencore. “There is great skepticism about this sector, but it was the best last year and it will benefit from a more positive framework in the relationship between supply and demand.” He is cautious in energy but has increased the weight somewhat, although he admits that it is a sector that requires being very selective. Within this sector, he is still committed to renewable energy, a structural tendency “in spite of Trump”. Among his main underweights are telecommunications, health, utilities, or basic consumption sectors.
Due in part to the fact that many bond-like securities are in the large-cap segment, this year the fund manager glimpses opportunities in small caps. Last July, the management company opened its fund that invests in small capitalization firms, which had been closed to new subscriptions since 2013.
Alken, which admits to two management mistakes in recent times: the investment in Monte dei Paschi (“with the added lesson of not trusting an Italian banker”), and the fact of not seeing the “destocking” in 2015, currently has 4.5 billion Euros in assets under management.
The political impact
On the risks posed by politics this year, Walewski is cautious: in Europe, he sees evidence that much of the risk has already been accounted for with the strong capital outflows last year. “It takes a lot for this risk to prevail over fundamentals: banks are improving, valuations are cheap, industrial firms are improving their pricing power… it takes a lot,” he says. In fact, he believes that the truly important elections will be the French ones, because the risk is the lack of integration in the Union: “The risk is the lack of solidarity in Europe. Apart from the ECB, there is not much integration,” he says, and he believes the French stance toward more federalism, or its rejection, is the key.
As regards Brexit, which last year provided a buying opportunity for British domestic companies, he believes that “everything is negotiable” –you only need to see the Swiss case, he says, in which some sectors enjoy more protectionism, while others enjoy greater openness– and that it will take years. “The deadline for triggering Article 50 is artificial,” he adds. Although there may be more volatility, he believes that some of the impact is already accounted for. He is also cautious about Trump and explains that the reaction of the markets will depend on their measures. Of course, he believes that over time it could lead to some disappointments, but he does not see it as an immediate threat to the markets.
Finally, while recognizing that China will limit its growth, he points out that the debt is in public hands, rather than in private, which limits the problems, so he does not consider that to be an immediate threat.
Pixabay CC0 Public DomainFoto: 495756. Annika Falkengren and Denis Pittet, New Managing Partners at Lombard Odier
The Lombard Odier Group announces the appointment of Annika Falkengren and Denis Pittet as new Managing Partners.
“These two nominations provide a solid base for the further build-up of the Lombard Odier Group” said Patrick Odier, Senior Managing Partner of the Lombard Odier Group. “We are particularly pleased to welcome two highly complementary personalities with Annika Falkengren, who brings a recognised expertise in the running of a respected and successful European financial institution, and Denis Pittet, who has contributed significantly to the strategic development of the bank over the past 20 years. These two appointments represent a strong endorsement of our strategy, differentiated business model and long term vision.”
Annika Falkengren, currently President and CEO of Skandinaviska Enskilda Banken (SEB), will join the Lombard Odier Group in July 2017 as a Managing Partner based in Geneva. Annika Falkengren joined SEB in 1987 and made a long and distinguished career which culminated in her nomination as President and CEO of SEB in 2005. Recognised as one of Europe’s most respected bankers, she is also Chairman of the Swedish Bankers Association.
“I am very honoured to join a Group with strong family values and with a truly international mindset and outlook”, said Annika Falkengren. “I firmly believe in the partnership model which has been underpinning Lombard Odier’s evolution over the 221 years of its history.”
Denis Pittet will become a Managing Partner in January 2017. Denis Pittet joined the Group in 1993 as a trained lawyer. He was Group Legal Counsel, before joining the Private Clients Unit in 2015 where he took over the responsibility for the independent asset managers’ department and led the expansion of wealth planning services in the areas of family governance and philanthropy. He became a Group Limited Partner in 2007. He is also Chairman of the Fondation Philanthropia, an umbrella foundation supporting clients’ long-term philanthropic projects.
“My objective will be to maintain a first class client experience at Lombard Odier”, added Denis Pittet. “We are solely dedicated to clients in a model which puts independence at the heart of everything we do.”
After 20 years of commitment to the Group, Managing Partner Anne-Marie de Weck retired on 31 December 2016. She joined Lombard Odier in 1997 to take over responsibility for the Firm’s legal department, and subsequently its Private Clients activity. A Managing Partner since 2002, Anne-Marie de Weck has made decisive contributions to the strategic development of the firm’s private client business.
“We would like to express our sincere thanks to Anne-Marie de Weck for her relentless commitment to serving our clients. We are also very grateful that she will maintain a close relationship with the Group as a member of the Board of Directors of our Swiss-based bank. In this role, she will continue to be involved in defining the strategic orientation and overseeing the operational activities of the business”, said Patrick Odier.
In July 2017, the Management Partnership of the Lombard Odier Group will be composed of Patrick Odier (Senior Partner), Christophe Hentsch, Hubert Keller, Frédéric Rochat, Hugo Bänziger, Denis Pittet and Annika Falkengren.
Photo: Investment Europe. Invesco Fixed Income Appoints Emea Chief Investment Officer
Invesco today announced the appointment of Gareth Isaac as Chief Investment Officer, EMEA for Invesco Fixed Income (IFI). Gareth reports to Rob Waldner, Chief Strategist and Head of the Multi-Sector team for Invesco Fixed Income.
This is a newly created role and a significant hire to support the growth of IFI globally and in the EMEA region in particular. As EMEA CIO, Gareth will lead the portfolio management and strategic investment thinking of the Global Macro team in London and represent the EMEA region on the IFI lnvestment Strategy Team (IST). Gareth will support Nick Tolchard, IFI’s Head of EMEA, to drive growth of the IFI business in the EMEA region. He will also work closely with the Investment Grade Credit, High Yield, Emerging Markets and Credit analyst teams to contribute to product development in these areas.
Gareth, who is based in London, joins from Schroders Investment Management, where he was a Senior Fixed Income Fund Manager for five years, with responsibility for portfolio management, investment strategy and client and consultant relationships. His experience in managing fixed income investments spans nearly 20 years, with previous roles at GLG Partners, SG Asset Management, Newton Investment Management and AXA Investment Management.
Nick Tolchard, Head of EMEA for Invesco Fixed Income, commented: “Gareth’s credentials in developing and delivering strong investment strategies and his depth of experience in fixed income markets make him the ideal candidate for this role. He is known in the investor and consultant industry as a highly credible and respected investment strategist and we look forward to working together to deliver a superior investment experience for our clients globally.”
Pixabay CC0 Public DomainPhoto: bykst. Credit Suisse: Conflicts of Generations Sets Tone for 2017
In its recently published annual Investment Outlook, Credit Suisse’s investment experts suggest that financial markets are likely to remain challenging in 2017. The central economic forecast is for global GDP growth to accelerate slightly next year from 3.1% to 3.4%, albeit with pronounced regional differences. In combination with a slight rise in inflation and some monetary tightening, most asset classes are expected to generate low returns in 2017.
Fundamental economic and social tensions – summarized using the term ‘Conflicts of Generations’ – provide an uncertain backdrop for investors. Michael Strobaek, Global Chief Investment Officer at Credit Suisse, predicts: “The investment environment remains difficult and political events are again likely to trigger some turbulence in 2017. However, market corrections are likely to offer selected opportunities that investors should seize”.
Global economic forecast
Global growth should improve somewhat in 2017, albeit with significant differences between countries and regions. On the whole, investors can expect a slight recovery in corporate investment coupled with still robust consumer demand, but overall growth is likely to remain well below pre-crisis levels. US fiscal easing would support the cyclical upswing, while uncertainty over global trade could act as a restraint.
Inflation is likely to pick up but should remain well below central bank targets in many developed economies except for the USA. While the US Federal Reserve will likely continue its gradual normalization of interest rates, other central banks will probably maintain a more accommodative stance, while shifting away from mechanical balance sheet expansion.
Oliver Adler, Head of Economic Research at Credit Suisse says: “Political uncertainty and risks look set to remain in the spotlight, as Brexit negotiations are initiated, elections are on the agenda in core European countries and the foreign, security and trade policies of the new US Administration take shape”.
Credit Suisse’s investment experts see European risk assets (credits and equities) as particularly exposed to an increase in political risks.
Global market outlook
Rising yields and steepening yield curves are beneficial for financial sector profitability. European political events are a source of potential volatility for European institutions, but US financials (including junior subordinated debt) are still favored as a source of return. The Trump administration is likely to favor less rather than more regulation in the financial sector. Emerging market (EM) hard currency bonds are attractive due to their yield and diversification potential. After the strong rally in EM bonds in 2016, country and sector selection will, however, be a key determinant of returns in the year ahead.
Among equities, investors should favor the healthcare and technology sectors in view of their sound fundamentals. Healthcare offers some of the strongest earnings trends. Technology, meanwhile, is still growing strongly in areas such as cybersecurity, robotics and virtual reality. Both sectors also have the most to gain from a likely US repatriation tax break.
Credit Suisse’s investment experts also favor selected infrastructure-oriented stocks, notably construction and construction-exposed industrials. In combination, the increased political will for fiscal expansion and a growing need to renew infrastructure will provide significant stimulus in several large economies in the coming years, including in the USA. The US dollar is expected to gain ground in view of rising US interest rates, fiscal expansion and a potential repatriation of deferred US corporate taxes. While the euro may suffer from a focus on political risks in 2017, the Japanese yen should recover from undervalued levels.
Nannette Hechler Fayd’herbe, Global Head of Investment Strategy at Credit Suisse, says: “The biggest challenge investors face in 2017 is to find yield at reasonable risk. We consider emerging market bonds to be the most attractive but selectivity as regards issuer risk remains key.”
Switzerland
For Switzerland, Credit Suisse’s investment experts expect continued moderate growth with an ongoing recovery in exports and subdued domestic demand. While inflation should remain below target, deflation risks have subsided.
The Swiss franc is, however, likely to weaken versus a generally stronger US dollar. Credit Suisse currency experts believe that any depreciation of the Swiss franc against the euro is likely to very limited, given that interest rates will remain low in the Eurozone and also due to lingering political risks in Europe.
Anja Hochberg, Chief Investment Officer Switzerland at Credit Suisse, says: “We recommend to add broadly diversified emerging market bonds to the portfolio and favor Swiss equities over Swiss bonds, with a preference for pharma and IT shares. For investors that can bear some illiquidity, private equity continues to be an interesting asset class.”
Europe & EMEA
Uncertainties over Brexit, political risks and intermittent worries over the health of European banks are likely to create bouts of volatility in European risk assets, making risk-adjusted returns on equities less attractive.
However, Credit Suisse’s economists believe that Brexit is unlikely to trigger exits by other EU members. Hence, peripheral sovereign and bank bonds should hold up well. Risks in Italy and Portugal need to be closely monitored, however.
The Eurozone should see modest growth. However, the divergence between a slightly tighter Fed and a still very accommodative European Central Bank mean the euro is unlikely to make gains against the US dollar. The British pound should stabilize after its drop below fair value in 2016.
Michael O’Sullivan, Chief Investment Officer International Wealth Management at Credit Suisse, explains: “What is certain even at this stage is that Brexit will visit economic and political uncertainty not just upon the UK itself but also upon its European neighbors.”
Asia Pacific
Asia can look forward to stable growth in 2017, underpinned by a structural transition from manufactured exports to services-based consumption.
China remains on course for a soft landing, as the government successfully manages a bifurcated economy in which the industrial trade sector continues to decelerate while domestic services expand steadily. In this context, the real estate sector must be prevented from overheating in tier 1 cities.
A supportive combination of firming economic growth, reasonable valuations and improving profitability suggests that emerging Asian equities should perform well in 2017, possibly outperforming their global emerging markets counterparts.
John Woods, Chief Investment Officer Asia Pacific at Credit Suisse, notes: “Our more favorable view on Asia reflects our improving view on China, where we believe the domestic economy – particularly the services sector – should surprise to the upside.”
