Swiss Bank That ’Discovered’ U.S. Picks China Over Weak EuropeBy
The Swiss bank that built its fortune tapping new opportunities in the U.S. two centuries ago is telling investors to ditch sclerotic Europe and have greater faith in emerging markets.
According to Lombard Odier, Europe is facing at least another decade of ultra low interest rates, a scenario not unlike what’s been playing out in Japan. By contrast, the outlook is much better in Asia, and China in particular.
Asia represents “a significant investment opportunity,” Theodore Economou, chief investment officer at Lombard’s multi-asset business, said in an interview in Stockholm.
Geneva’s oldest private bank managed 159 billion dollars of client assets at the end of June.
According to Economou, recent concerns that China might be losing control of its economy are "highly overblown." Instead, more attention should be paid to the country’s ongoing efforts to boost domestic consumption.
By contrast, the situation looks pretty dire in Europe, whose struggle to recover from its sovereign debt crisis has Economou drawing comparisons to the Great Depression of the 1930s.
"We’re now eight years into flooding the world with liquidity and there’s no inflation, so you can expect yield curves to remain flat,” he said.
In a scenario of chronically low growth, negative rates and major bond buying exercises by Europe’s central banks, pension funds and insurers need to re-think their outdated investment models. The traditional composition of 60 percent stocks and 40 percent bonds, for instance, is no longer generating “phenomenal” returns, he said.
Instead, the key is diversification.
“Once you realize that the bond market’s liquidity is fractured and fixed income doesn’t get you where you want to be, then everything else follows,” he said.
The logical step is to look beyond the confines of Europe, to places where valuations "remain depressed" and "currencies are very cheap.” With private consumption set to grow not only in China but also in Brazil, Russia and South Africa, the so-called BRICS are an obvious source of “significant opportunities.”
Investing in emerging markets is rarely risk-free. Lombard Odier should know.
Not long after the bank was founded by Calvinist refugees in 1796, it decided to be bold and look for alternatives to the staple investment diet of the day - government bonds from Britain, the German states, Russia and France. It eventually opted for a particularly interesting emerging market.
That market was called the United States.