In this feature, Anja Hochberg, Head Investment Strategy at Credit Suisse’s Asset Management division, shares their tactical and strategic asset allocation outlook and potential investment opportunities on the radar screen...including why hedge funds, at Credit Suisse's Asset Management division are currently an asset allocation overweight, why they expect the trend in inflation will be upward rather than downwards, and amongst others why gold as a strategic investment continues to be favoured...
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Q1 - Given the high degree of uncertainty enveloping financial markets - particularly in the context of the challenges facing the US, Eurozone and Japanese economies … how are these issues conditioning your formulation of strategic and tactical asset allocation strategy?
Tactical overlay - opportunities will outweigh the risks
Strategic emphasis on "real assets"
Lows reached - with regards equities; might even provide some good entry opportunities
Q2 - What is the probability of global financial markets slipping back into a recession?
Tail risk (probability is rather low but could have a huge impact)
Triggers could be high oil prices, un-orderly restructuring of the Greek debt issues
Are Spain and Italy next? v.s. Greece, Ireland, and Portugal’s sovereign debt crisis
The fiscal discipline issue is something markets will continue to follow closely
The role of the USD - the US deficit, structural issues...
Real assets including equities will outperform nominal assets
Low yields + somewhat higher inflation outlook
The inflation pendulum effect - has likely reached the bottom of the deflationary cycle and hence expect the trend in inflation will be upward rather than downwards
Commodities and gold - will continue to play out on the back of the underpinning emerging market growth story
Gold's upside potential?
Q4 - An allocation of 20% to alternative investments and their current overweight in hedge funds
Q5 - Emerging markets do face a temporary economic slowdown - which differs, as it is policy induced which is welcome and has the advantage that it can be fine tuned
Emerging market economic growth might come back somewhat quicker to the agenda than the economic growth in the developed markets
Q6 - It is important to have a robust investment strategy for the medium to longer term - so a benchmark does not really matter
Waiting till the macro economic factors have been fully priced in by the markets - it already has been to a large degree, but not yet fully
Still need to see how the end of Quantitative Easing II is going to play out, which could provide volatility
Once “the dust has settled” - recommend going back into risky assets - equities and commodities, and favour emerging markets for instance, and recommend beefing up the exposure to commodity cyclicals.