Private investors are throwing their money away because they are stuck in a comfort zone that stops them seeking out new or opportunities, claims Janwillem Acket, chief economist at Bank Julius Baer.
Investors seem more than willing to lose money on fixed income investments, gold or emerging market shares or to let inflation erode the value of their cash deposits, he argues.
Instead, these investors should look for better returns elsewhere – and suggests European equities as one option as many are 50% under 2012 levels.
Acket revealed he is looking at equities in Italy, Ireland and Spain, but suggests staying away from Greece.
He also disclosed US equities seem good value even though the prices are climbing.
In a detailed report, Bank Julius Baer explained the thinking behind the strategy.
Big changes ahead
The advocacy of switching investments is based on what the bank sees as a falling risk factor as economies level out after the downturn.
The report steers investors away from emerging markets on the grounds a switch from growth from exports to internal consumption will see a decline in company values. Similarly, falling commodity values will lead investors to other markets.
In a roundup of the current state of the global economy, the bank says:
- Developed nations will gain momentum in the recovery and the gap between developed and emerging market growth rates will start to even out
- Switzerland is likely to see continued growth as the European Union recovers. The EU is the nation’s major market
- Safe haven assets, like gold and bonds, will become less attractive as other investments derisk and step up with attractive returns, like Chinese currency and the healthcare sector.
The bank sees 2014 as a year of big change as markets ‘recouple’.
Comfort zones
“Many rules investors have faithfully followed in recent years are unlikely to continue to apply,” said the report. “Many trends are reaching a turning point.
“Take financial markets, which uncouple from interest rates in the late 90s. A new trend is emerging that shows the markets are realigning with long term averages, so the risk of investment will decline to the detriment of fixed term investments.”
The bank explains that investors will have to leave their comfort zones and restructure their portfolios to trigger the best returns rather than seem only too willing to ’lose money’ on fixed income investments, gold and emerging market shares.
