Abu Dhabi-Backed Falcon Sees Central Banks Supporting Stocks

Falcon Private Bank, the wealth manager owned by an Abu Dhabi sovereign wealth fund, expects stock declines to be temporary as fund managers move from bond purchases and central banks step in to support asset prices.

Equities are in a multi-year bull market and will be underpinned by the shift of institutional money from bonds, valuations that are cheap on a historical basis and the accommodative stance of policy makers to capital markets, David Pinkerton, the chief investment officer for Falcon, said yesterday in a phone interview from its Zurich headquarters.

More than $2.5 trillion has been erased from the value of global equities since Fed Chairman Ben S. Bernanke said May 22 the central bank could scale back stimulus efforts should the job market show “sustainable improvement.” In a June 10 speech, European Central Bank executive board member Benoit Coeure said policy makers have the ability to provide additional stimulus to aid the single currency block’s economy.

“The mentality of the central banks has been very gentle toward the capital markets,” said Pinkerton, a former manager of AIG’s private equity portfolio. “We’re going through a correction within a bull market and not a correction toward a bear market. We’re still in a bull market.”

The global economy will expand 2.2 percent in 2013, the World Bank said this week, paring a January forecast of 2.4 percent. The Federal Open Market Committee meets next week after the Bank of Japan this week left its lending program unchanged. Global stocks have plunged 5.3 percent from their May 21 peak this year on speculation the Fed may ease stimulus.

Equities Better

“If it’s spring time and there’s a cold snap, it doesn’t mean that winter’s coming back,” Pinkerton said of recent declines in the stock market. “Equities are still a better place for capital than bonds.”

ECB President Mario Draghi said June 6 the euro-area economy will return to growth by the end of the year as policy makers held back further stimulus measures. The ECB’s Governing Council left its main refinancing rate at 0.5 percent after reducing it by a quarter point last month.

Policy makers “have determined that the social costs of inflation are more manageable than the social costs of deflation,” Pinkerton said. “I don’t have a fear that interest rates will rise rapidly and or sustainably in the near future.”

Emerging Markets

The MSCI Emerging Markets Index advanced 1.2 percent to 954.69 from its lowest close since Sept. 5 at 9:33 a.m. in London. The gauge fell 2.6 percent this week, heading for its longest run of declines in a year, as foreign investors pulled funds from developing-nation assets amid the stimulus concerns.

Falcon Private Bank is targeting companies undertaking major share repurchase programs or ones likely to do so for client portfolios, Pinkerton said, adding that this will help underpin stock prices.

Falcon Private Bank is based in Zurich with about 15 billion Swiss francs ($16 billion) under management and is owned by Abu Dhabi’s Aabar Investment PJS.

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