Opalesque Industry Update - Global economic performance has been weaker than expected; nevertheless, financial markets were
relatively unfazed by these developments, as central banks’ policies remain highly accommodative.
“After having seen weak growth in the first quarter, we’re staying positive on the economic outlook and
expect more solid activity, buoyed by good news”, says Patrice Gautry, Chief Economist at Union
Bancaire Privée (UBP). The trend towards risk assets – especially equities – is still there thanks to
recoveries in both growth and earnings. With this in mind, the scenario set out at the end of 2013
remains valid and should crystallise over the coming quarters.
Accelerated world growth Some emerging countries – notably China – are changing their growth models, which will act as a drag on activity in the short term, but this action is set to be positive in the medium term. We remain confident that the authorities in China will make sure that this transition will happen without any major impact on world growth.
Equity bias remains in place “It should be remembered that this trend does not call our scenario into question: this sees a rise in rates stimulated by stronger growth in developed countries”, continues Perrig. In this framework, corporate debt continues to be favoured, particularly the high-yield segment and the external debt of emerging countries, given that carry trade is still attractive, even if the expected returns are lower than a year ago; short durations are therefore recommended in such an environment. Equities remain the asset class of choice. Their higher valuation levels (in absolute terms) do not seem to be a constraint at this stage given the upturn in earnings, the recovery in economic activity in developed countries and the high price of bonds. “It is true that, since the beginning of 2014, we have been seeing a sector rotation out of growth assets and into defensives; nonetheless, we remain convinced that innovation is still a central theme in both the medium and long term”, concludes Perrig. Further, the number of mergers and acquisitions, coupled with share buy-back schemes should continue to support equity markets. |
Industry Updates
Swiss Private Bank UBP: Growth 'stronger than you think'
Monday, June 23, 2014
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