BIL CIO: Opportunities in risky assets
Yves Kuhn, chief investment officer at Banque Internationale à Luxembourg (BIL), discusses how to beat market fear of investing in risky assets.
“The IMF’s downgrade on expectations for global economic growth led to a sell off, with its forecast reduced for the year ahead to 3.3%. Weak manufacturing data in Germany, the economic powerhouse of Europe, brought concerns of a widespread recession in Europe. In addition, the tumble in oil prices is an omen for manufacturing, and a sign that global industrial production will fall.
“It is not just economic data which is making investors edgy. Issues such as the actions of ISIS, and Ebola is creating uncertainty and even fear. When we compare the amount of times Ebola is mentioned in the press and its impact on the fear index (the so-called VIX index) of Wall Street, the correlation is extremely high, at 0.85%. This cocktail of fear and bad economic data is leading to an increased nervousness for investors.
“Investors are voting with their feet, selling risk assets such as equities, and keeping their money in cash. A cocktail of facts and fear, particularly with worries of a triple dip recession in Europe, is leading to investors sitting on the sidelines.
“On the flip side there is a positive outlook to be found. However, the Euro has depreciated by over 11% since its peak, making European companies much more competitive internationally. Secondly, the austerity demanded by the German government is much less rigid. The ECB is pumping money into the European economy, important for risk assets. In addition to this, the fall in oil prices is a catalyst for increased consumer spending.
“Fear of Ebola is real, but I believe the CEOs of major pharmaceutical companies will stick to their promise of providing up to 500,000 vaccines by the end of this year.
“It is important for investors to maintain discipline and rationality even use this fear within markets to seek out and action new investment opportunities. We see opportunities arising particularly in risk assets and in holding these new positions for at least 12 – 24 months.”