Buy stocks. Bet on growth. Beat the bond market.
Investors aren't likely to have heard those words uttered for quite a while. But wealth managers seem convinced that the time is right to plunge back into the stock market.
But is it?
The sluggish economic prospects of the past four years have now faded from view in the United States, China is making a soft landing and there are faint signs of an end to Europe's sovereign debt crisis. Reasons enough for some investors to feel optimistic, says Johannes Jooste, the head of strategy for Europe, the Middle East and Africa at Bank of America Merrill Lynch.
But that doesn't mean investors are snapping.
"In Europe and the US, our investor base is very conservative post the crisis, overweight in fixed income," he says. "A typical problem we face is coaxing someone out of fixed income and back into equities."
But given that many investors still bear the "scar tissue" of the crisis, as Goldman Sachs' sinister turn of phrase memorably put it, it is worth wondering how long those stock investors who got their fingers burnt will remain wary of equity markets.
After all, if wealth managers are so keen on selling equities to us, it is worth thinking about why they are selling equities in the first place.
Stocks could quite easily receive a clobbering if the US congress fails to reach a compromise over the so-called fiscal cliff. Going over the edge could disrupt growth in the world's biggest economy by about 4.6 per cent, according to estimates from the IMF.
But wealth managers are increasingly warning that bond markets may be past their prime.
Fixed income tends to perform better during tough economic times because bondholders get their money back before shareholders in the event of a company's liquidation. That gives bonds a veneer of safety compared to stocks.
Successive announcements of additional bond-buying programmes by the US Federal Reserve, European Central Bank and the Bank of Japan have contributed towards a flattening of yields first on highly rated sovereign debts, then investment grade corporate credit. (Bond yields move in the opposite direction from prices.)
But as high-yield debts - or "junk bonds" - start to show yields tightening too, many are getting twitchy.
With few opportunities left in sovereign bonds in developed markets following recent rallies, investment grade bonds offer only selective opportunities, says David Pinkerton, the chief investment officer at Falcon Private Bank.
"We still believe there are going to be continued capital flows into the global emerging market bond space," he says. "The key is if superior yield is going to continue on a global scale."
Strong demand for bonds from central banks has pushed sovereign bonds in developed markets to below prevailing rates of inflation. But this has also been the case in Abu Dhabi and Qatar, where local companies backed by regional governments are benefiting from some of the lowest borrowing costs in years.
"To date bond holders have been very well supported by a hesitant recovery in the economy and massive purchases of bonds by the Federal Reserve," wrote Gary Dugan,the chief investment officer for Asia and the Middle East at Coutts.
"We don't expect any change in strategy, however the market may increasingly fret over how the Fed is going to slowly extract itself from the very accommodating support it is providing the economy and the bond market."
As yields dwindle, there are few options available for investors.
One workaround is more leverage, to turbocharge returns on so-called "safe assets".
Given the thirst for yield, many investors need to be dissuaded from taking excessive leverage beyond what is prudent, says Paolo Moscovici, the head of Middle East and emerging markets at JPMorgan Private Bank.
For most banks, this is a message that was rammed home during the financial crisis.
"Prudent leverage saved us in 2008," he says. "None of our private clients had situations where they were overleveraged. That's the worst possible situation where a private client can be."
A highly leveraged portfolio, for all the yield benefits it may bring, may not look so attractive when stress-tested against the kind of market meltdown seen during the past few years, Mr Moscovici adds.
Another alternative is to return to equities, but Mr Pinkerton says this currently has little appeal for the average investor.
In recent years, asset managers recommended holding high-yielding dividend stocks in defensive sectors such as telecoms and utilities.
The theory was that these equities were the most bond-like, because of their consistent dividend payouts, but with a dash of risk to provide a little extra potential return.
In a sign of the changed times, they are now recommending growth stocks.
Inflation might seem to be dead, but Mr Jooste says it is really in "hibernation". And nothing will turn the bond market bearish faster than a prolonged bout of inflation.
ghunter@thenational.ae
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
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Engine: 6.2-litre V8
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Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
SPECS
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Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
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Specs
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At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
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2025 Fifa Club World Cup groups
Group A: Palmeiras, Porto, Al Ahly, Inter Miami.
Group B: Paris Saint-Germain, Atletico Madrid, Botafogo, Seattle.
Group C: Bayern Munich, Auckland City, Boca Juniors, Benfica.
Group D: Flamengo, ES Tunis, Chelsea, (Leon banned).
Group E: River Plate, Urawa, Monterrey, Inter Milan.
Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.
Group G: Manchester City, Wydad, Al Ain, Juventus.
Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.
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SPD: "Border closures and blanket rejections at internal borders contradict the spirit of a common area of freedom"
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Day 5, Abu Dhabi Test: At a glance
Moment of the day When Dilruwan Perera dismissed Yasir Shah to end Pakistan’s limp resistance, the Sri Lankans charged around the field with the fevered delirium of a side not used to winning. Trouble was, they had not. The delivery was deemed a no ball. Sri Lanka had a nervy wait, but it was merely a stay of execution for the beleaguered hosts.
Stat of the day – 5 Pakistan have lost all 10 wickets on the fifth day of a Test five times since the start of 2016. It is an alarming departure for a side who had apparently erased regular collapses from their resume. “The only thing I can say, it’s not a mitigating excuse at all, but that’s a young batting line up, obviously trying to find their way,” said Mickey Arthur, Pakistan’s coach.
The verdict Test matches in the UAE are known for speeding up on the last two days, but this was extreme. The first two innings of this Test took 11 sessions to complete. The remaining two were done in less than four. The nature of Pakistan’s capitulation at the end showed just how difficult the transition is going to be in the post Misbah-ul-Haq era.
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Sinan Antoon
(Yale University Press)
