Investment Perspectives 2013

Executive Summary

In 2012, considerable progress was made in the Euro zone. The ECB’s commitment to buy troubled debt proved to be a turning point, with rates in Italy and Spain dropping to non-stressed levels. The risk of a breakup has decreased and Greece has been given more time. The improvement of the housing sector in the United States has contributed to higher levels of consumer confidence while the Chinese economy has avoided a hard landing. Finally, thepolitical landscape has become clearer following the change of leadership in China and elections in the U.S. and France. In particular, the dynamic of the Franco-German axis has been impacted by the election of the new French President, François Hollande.


The financial markets were characterized by strong demand for all types of debt instruments and low volumes in the equity markets. The best risk-adjusted performances were recorded by assets within the fixed-income space. During the first half, U.S. equities were resilient while European ones were under selling pressure. These trends reversed from June onwards, with European equities outperforming. Volatility in foreign-exchange markets was also high, even though year-on-year variations were small for the main parities.


Global economic growth will remain modest in 2013. Austerity programs will continue to impact economic activity in the Euro zone even if it should have to face lesser headwinds. The prospects for the United States appear more encouraging but, even if an agreement on the fiscal cliff has been reached, the pace of growth will be below trend. The global economy can no longer rely on elevated growth rates of emerging economies as the latter have not been immune to the issues faced by the more developed economies.


Monetary policies will remain very accommodative in the developed economies. The Federal Reserve has asserted its intention to maintain interest rates close to zero for an extended period and to support the housing market by buying mortgage-backed securities. The European Central Bank will continue to provide liquidity to the banking sector and is committed to purchase peripheral sovereign debt under certain conditions. The central banks of emerging economies are also likely to maintain their accommodative stance by extending their looser monetary policies.


We recommend a more dynamic positioning of the portfolios at the beginning of 2013. The significantly tighter credit spreads of Investment Grade corporate bonds has reduced their attractiveness while the receding tail risks are more supportive for risky assets.


For the beginning of 2013, we recommend reducing the exposure to investment-grade credit and continue to exclude any investments into G-7 government bonds. We also recommend increasing the exposure to convertible bonds, while the current allocations into high-yield and emerging market debt are maintained.


Our exposure to equities will favour high-quality dividend stocks. We also like the shares ofinternational companies with strong brands, especially those with growing emerging markets exposure. From a regional perspective, our assessment is that European and emerging market equities should outperform those of the United States.

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