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CIO Video April 2015

Recently, economic data from the US has surprised to the downside and in China the central bank has eased monetary policy surprisingly aggressively following weaker than expected data. And in Europe the Greek situation is still not solved. What implications do these developments have for investors? Joining us to discuss this question is Michael Strobaek, Credit Suisse's Global CIO.

Dan Scott: Michael. Is the global economic recovery still on track?

Michael Strobaek:

  • In the US the labor market still look healthy. In particular we have positive wage growth suggesting the recovery there is still self-sustaining. Weak oil prices are also helping the consumer.
  • In China policy makers are responding fast and aggressively to the weaker data which should lead to stabilization. We expect further rate cuts here.
  • In Europe the Greek situation is still an issue but contagion risks seem low and contained. Latest comments from the IMF meeting suggest talks are becoming more constructive. Besides Greece, the EC Blending survey shows that lending conditions are improving after the beginning in QE. So we do see the first improvements.
  • We therefore don't see the economic outlook as pessimistic as other market participants do.

The Investment Committee has decided to stick to its a neutral position in global equities. But are there changes in regional preferences?

  • We have said for some time that equities are our preferred asset class for the year from a cyclical point of view. And recently we have seen an upgrade of technical indicators such as momentum to neutral. However with valuation being expensive we would prefer to see an outright positive technical assessment before we go overweight.
  • In terms of regional preferences we still favor those regions where monetary policy is supportive such as Japan or Australia but also China. After the recent set-back we have decided to take profit on our EMU outperform call though. We have upgraded the US equity market outlook to neutral following improved technical indicators.

We retain our negative view on fixed income. What can investors still buy within that asset class.

  • The extremely low yield level makes it very difficult to achieve positive total returns in fixed income. Valuation looks challenging across the board.
  • We prefer those segments that offer a yield pick-up at a reasonable risk. High yield bonds are still an area where we are overweight.
  • Inflation linked bonds are also attractive as inflation expectations have troughed and are now rising.

You have downgraded the outlook for commodities to outright negative. How low can oil prices go?

  • Commodity markets are different from stocks and bonds as they are less forward looking. While stocks and bonds already react based on the expectation of further monetary easing, commodities will only react once hard economic data actually picks up.
  • The negative surprises in China should therefore weigh on commodities. Easing measures are on the way and financial markets should benefit. However it will take time until this is reflected in hard economic data. And the risk is that commodities suffer further in the meantime.
  • Within commodities, we have an outperform rating on oil, i.e. oil prices should do better than other commodity markets as US shale output shows the first signs of slowing.

Thank you Michael