We would like to give you an update on our global macro view at a time when the future direction for the global economy seems more uncertain than ever. Despite having gone hrough a global economic crisis the magnitude of which has not been seen for many decades, the world has not gone under, and we predict that it won’t do so in the future.
These times remain very challenging in many ways. We are convinced, however, that the current environment presents a unique investment opportunity for the long-term minded investor who does not let his focus shift away from what is really important. We agree that it is all too simple to get lost amidst the confusion of global market and economic upheavals and the ever-expanding measures taken to combat the current crisis. It’s easy to get trapped in a state of frustration and endless complaining, but, the returns of the future are made today.
A sound investment strategy needs to be based on a detailed view of the global economic system as well as geopolitical and psychological factors that play an equally important role in the decision-making process of investors. We have always regarded ourselves as “global macro” managers, taking a very global view on things and identifying various value drivers created internationally. We see today no shortage of opportunities in currency markets, interest rates, equities and alternative investments such as commodities or precious metals.
believe that global equity markets hit the bottom in March of this year and were not surprised by the market recovery in the last couple of weeks. We realize that a lot of investors are confused by this upward movement in equity prices, especially considering the very bleak outlook for the global economy. But make no mistake, the economy is one thing, financial markets quite another. Typically, the real economy moves with a time lag of 6-9 months and therefore the current recovery in equity prices is just a sign that the market is anticipating things to get better from here. It’s not a surprise that gold could not make further advances towards USD 1’000 because other asset classes have become more attractive on a relative basis, such as equity markets.
It seems that investors these days are polarized as either pessimists or optimists The pessimists are expecting things to deteriorate further from here and get much worse and the optimists are beginning to see the light at the end of the tunnel. We do not belong to either of those two groups, and opt instead to try and take a pragmatic view on things. We firmly believe that the truth is somewhere in the middle of those two extremes. We expect the global economy to improve gradually from here as outlined in our latest market report. We believe that global equity markets to rise another 15%-20% from current levels in the next 12 months, simply because of an anticipated recovery of the global economy.
We believe that the liquidity and stimulus pumped into the global economy will help it to recover, but at a cost. That cost will likely be increased inflationary pressure in the coming 2-3 years. We are sceptical as to whether or not central banks around the world will manage to withdraw the excess liquidity from the system in a timely fashion once the velocity of money flow has risen. We believe that emerging equity markets and currencies will do very well in the months ahead.
For the first time ever, the recovery could be lead by emerging markets. The fundamentals for China, India and Brazil look increasingly positive and promising.
Equity investments usually make up only about 30% to 35% of our investment allocations. We invest about 30% of our portfolios in alternative assets such as commodities and precious metals. The rest is usually made up of fixed-income investments and currencies.
We believe that a crucial part of a successful investment strategy is the foreign currency management. We keep very low U.S. Dollar exposures because we think a further devaluation of the greenback is imminent, and we see a structural weakness for at least a number of years. On the other hand, we see some very interesting opportunities in “commodity backed” currencies such as the Australian Dollar, Norwegian Crowns or the Brazilian Real. We also continue to like gold, other precious metals and commodities. In general, our investment strategy aims to build value in coming months based on the following events and return drivers:
- Global equity markets to recover a further 10-20% until the end of the year
- Global recovery will be lead by emerging market countries
- Further, possibly significant, devaluation of the U.S. Dollar
- Positive fundamentals for “commodity backed” and “surplus” currencies
- Yield curves to remain very low at short end, but rising at long end
- Oil prices to move towards USD 100 again by the end of the year
- Commodity prices to accelerate further from current levels
- Gold to break the $1,000 mark and moving towards $1,300 in next 12 months