Animal spirits are at play in boosting investor sentiment and market returns.
This is according to Mouhammed Choukeir, Kleinwort Benson’s newly appointed Chief Investment Officer, who has been in the Channel Islands to speak at a series of breakfast presentations, and meet with select local intermediaries and clients in Guernsey and Jersey.
“2012 is off to a good start with risk assets performing incredibly well so far this year: global equities are up 5.0 per cent; investment grade and high yield bonds are up 2.3 and 3.7 per cent respectively; emerging market bonds are up 6 per cent; the euro is up 1 per cent versus the dollar; gold is up 11 per cent; and even Italian 10 year bond yields are back below 6.0 per cent having reached 7.2 per cent in November 2011,” said Choukeir. So what has changed since last year?
“From a fundamental point of view, very little. Sovereigns still have mountains of debt while continuing to run huge deficits, and austerity plans are likely to stifle growth.”
In spite of all this, Choukeir believes that, quoting John Maynard Keynes, “animal spirits” have had a positive impact on the markets. Being negative is tiring, and investors are somewhat weary of being as bearish and gloomy as they were for most of 2011. This, combined with a number of developments in financial market, turned the glass from half empty to half full in January.” “On 9 February, the BoE increased its asset purchases by £50 billion to £325 billion. So favourable policy action, combined with positive momentum and cheap valuations lead us, at Kleinwort Benson, to remain positive on UK equities.”
Despite Kleinwort Benson’s stance on UK equities, it remains broadly defensive in portfolios. One reason for this is the potential for disorderly default in Europe.
“The Greek drama is far from over,” said Choukeir. “Clearly passing the Greek austerity measures through parliament was a positive step. However agreeing on bond haircuts and austerity packages is one thing, but writing the cheques is another. There is increasing opposition and reluctance from other European and budget-constrained governments to open up the coffers, which could lead to a messy default. On the whole, investors seem complacent about this important risk. “We prefer to only take risk when risk is well rewarded. That only happens when valuations are compelling – following this philosophy leads to better outcomes than a strategy of buy-and-hope.”
Kleinwort Benson is one of the longest established financial institutions in Guernsey and Jersey, celebrating its 50th anniversary in the Channel Islands this year. Its Channel Islands-based investment management team manages a large fiduciary, corporate, pension and private client base offering discretionary investment management services for both international and locally based clients across a broad range of investment strategies.
"I am delighted to visit Jersey,” said Choukeir. “As one of the world’s major international finance centres, its geographical location, coupled with a strong and stable regulatory and government framework, has kept Jersey at the forefront of global finance for half a century. From Kleinwort Benson’s perspective, our Jersey office forms an integral part of our regional investment offering.”