SG Hambros Tells Clients to Buy Stocks as Central Banks Prop Up Economy

Investors should buy stocks as actions by central banks around the world help prevent economies from slipping back into a recession, according to SG Hambros Bank Ltd.

Andrew Popper, chief investment officer at the bank for the wealthy, said he expects stock markets to post positive returns for the rest of the year and the “odds” are for good performance in 2011. He also recommends betting against the U.S. dollar by holding the Australian, New Zealand and Canadian currencies as well as those from emerging markets.

“Recently, we are perceiving a more positive outlook for equities,” Popper said in an interview in Edinburgh. “It’s not that we’re bullish, but we’re bringing back equity positions in portfolios to what is considered a normal level.”

The MSCI World Index, a benchmark for developed markets, rallied 9.1 percent in September, the biggest monthly gain since April last year. Stocks, by that measure, are now set to show an increase for 2010 as investors become more optimistic about the prospects for company earnings while central banks keep interest rates low and add money to the economy.

Economists don’t predict the Federal Reserve, European Central Bank or Bank of England to start increasing the cost of borrowing until at least the middle of next year. Popper said he expects them also to add more money with bond purchases, a process known as quantitative easing.

Good Mix

“In our view that’s a good mix of policies,” Popper, 66, said at SG Hambros’s office in Scotland on Oct. 6. “Economic growth is somewhat disappointing, but it’s better at this stage to allow monetary policies to do their job than to fine tune growth with fiscal policies, which are very blunt instruments.”

Government bonds have gone as high as they can and it’s tougher to find value from corporate bonds, according to Popper. He said investors should look at higher-yielding company credit from emerging markets or developed markets where the rating on the securities is lower.

Popper said in an Aug. 27 interview with Bloomberg Television that he was “very cautious” about equities because of “sluggish” economic growth. SG Hambros, part of French bank Societe Generale SA, was “underweight” on stocks. It’s now “neutral,” he said last week.

“We certainly see positive returns for equities for the rest of the year,” said Popper, who is responsible for about 4 billion pounds ($6.3 billion) of assets “I don’t know if that makes us bullish or not. The odds are more in favor of good performance for equities in 2011.”

To contact the reporter on this story: Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.

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