«Owner or lender?»

Will it be better to invest in equities or bonds in 2011? Growth prospects in emerging countries are strong and the US economy is improving gradually, so, coupled with the renewed monetary stimulus, we have a positive outlook for financial assets, especially equities. This combination should favour shareholders over debt holders in 2011. We expect a gradual economic recovery in the G7, but Pandora’s box may have been opened, letting loose risks upon the world

Asian and emerging countries to lead sustained growth in 2011

According to the macroeconomic analysis of Patrice Gautry, UBP’s Chief Economist, Asia will remain the world’s most dynamic economic region. A structural growth trend is in place in emerging countries, underpinned by domestic consumption and investment. Although long-lasting adjustments are likely to hold back the G7 economies, loose financial conditions should support a progressive recovery in credit and restore a more consistent trend in consumer spending. Three countries continue to appear as regional champions in terms of their contribution to world GDP and exports, namely the United States, Germany and China.

In the midst of this gradual recovery, 2011 should see a stronger, but lop-sided economic world. “The global economy remains unbalanced, with a string of recurrent crisis. Economic policy will be a major source of risk in 2011 and should be less synchronised than in the past”, said Patrice Gautry. Central banks have opened Pandora’s box, unleashing risks upon the world economy. He continued, “As we emerge from the financial crisis, the economy is drawing strength from the corporate world.”.

Investment strategy: monetary policies should favour equities

UBP’s investment strategy takes into account the prevailing major economic trends and reflects budgetary and monetary policies. Christophe Bernard, Head of Investment Strategy at UBP, advocates being a shareholder instead of a debt holder, as long as monetary policy remains accommodative and corporate margins high. He recommends focusing on global firms with strong brands, high sustainable returns and exposure to emerging markets.

UBP’s investment strategy takes into account the prevailing major economic trends and reflects budgetary and monetary policies. Christophe Bernard, Head of Investment Strategy at UBP, advocates being a shareholder instead of a debt holder, as long as monetary policy remains accommodative and corporate margins high. He recommends focusing on global firms with strong brands, high sustainable returns and exposure to emerging markets.

Alternatives: hedge fund industry still nascent

Interest in the alternative asset management industry is improving, as the tide is turning, with assets under management being close to an all-time high. Larry Morgenthal, CIO of Alternative Investments at UBP Asset Management, believes that reports of the demise of hedge funds are premature. He is quite positive about the industry and believes hedge funds remain an attractive proposition: they provide diversification benefits and they have strong alpha generation potential.

With respect to the various hedge fund strategies, Larry Morgenthal goes on to say, “Allocating between hedge fund strategies is in some respects like dating – we have had a great relationship with credit, are having an affair with long-short equity and think that emerging markets could be marriage material, while macro is like an old flame – not large in the picture now but one we expect to get back together with in the future.”