Perspectivas de Inversión 2010

Executive Summary

The vast amounts of money spent by the governments on banking and fiscal stimulus packages contributed to avert a financial meltdown and conditions in the financial markets improved significantly throughout 2009. Nevertheless, some very serious issues such as the deterioration of public finances and the severe contraction of lending activity by the banking sector still need to be resolved.

 

2009 was characterized by a strong recovery of the prices of equities and commodities, while investment grade credit, high-yield and emerging market debt experienced a huge amount of spread contraction. 2009 also turned out to be a much better year than expected for the hedge fund industry.

 

In many ways, 2010 could prove to be a very challenging year for the economic environment as several conditions need to be met before one can consider the recovery to be sustainable without the help of fiscal stimulus. In particular, a solution to reduce the high levels of unemployment in the developed world needs to be found, while consumer spending without the help of government subsidies is critical.

 

We do not expect the major central banks to modify their monetary policies before they are convinced that the economic recovery is on a sustainable path. We assume that the current conditions within the financial markets will be maintained for at least the next two quarters and consider that they are still supportive for risk assets.

 

We are looking to take further advantage from our current exposures to equities and fixed- income as it appears too early to implement any major changes within the portfolios.

 

Equities should continue to benefit from low interest rates, strong earnings per share growth, compelling relative valuations, sceptical investor positioning and high levels of liquidity. Furthermore, we anticipate a significant increase of M&A activity, which should generate additional support for the equity markets.

 

Our overall outlook on fixed-income is one of caution. At this stage, we find little value in G-7 government bonds and recommend holding a limited exposure to investment-grade credit following its strong gains recorded in 2009. Our favoured fixed-income segments are high yield bonds and emerging market debt.

 

We view hedge funds and structured products as being genuine alternatives to traditional assets and fully expect them to play an increasingly important role in terms of de-correlation and capital preservation, especially at a time when the holding of cash is so unrewarding.

Table 0f contents

  • EXECUTIVE SUMMARY
  • 2009: REVIEW OF OUR INVESTMENT THEMES
  • 2009: ECONOMIC DEVELOPMENT
  • 2009: THE FINANCIAL MARKETS
  • 2010 : ECONOMIC OUTLOOK
  • 2010: FINANCIAL MARKETS’ OUTLOOK
  • 2010: ASSET ALLOCATION