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Loose monetary policy, in the form of quantitative easing and low interest rates, has supported global financial markets since the credit crunch of 2007/8 but demands for central banks to remove the ‘punchbowl’ of money printing are only likely to increase in the coming year or two.
The result, according to Dean Turner, Economist in the UBS Chief Investment Office, is likely to see central banks switching focus from the creation of new money to the use of other tools such as interest rates and inflation targeting. Alongside the many political uncertainties in today’s world, the best approach to investing is one of global diversification.
Around 100 islanders (both professional intermediaries and private clients) heard Dean Turner and his colleague, Tim Kent-Robinson, Head of Portfolio Specialists at UBS, speak at two Insight Briefings held at the Grand Hotel last month.
Introduced by Michael Clarke, Head of Private Clients at UBS Wealth Management in Jersey, Dean presented UBS’s economic outlook for the year ahead, focusing on the role of the world’s main central banks, inflation forecasts and the political environment.
Whilst there’s a great deal of political uncertainty caused by both the US presidential elections and Brexit, Dean Turner pointed out that volatility in the world’s financial markets has actually fallen to a 50 year low, due in the main to central bank support. However, uncertainty about how long that support will continue and what, if anything, will replace it, makes diversification of investment assets more important than ever before.
This view was confirmed by Tim Kent-Robinson, who said that hedge funds, whilst not habitually a UBS portfolio recommendation, are currently delivering healthy risk-adjusted returns that act to balance the current uncertainty and offer a good alternative to the underperforming bond markets.
“The benefits of global diversification have been plain to see,” Tim Kent-Robinson told the audience. “Over the past year there’s always been a reason not to invest but if you’d sat on the sidelines, you’d have missed out on some good returns.”
On Brexit, Dean Turner pointed out that the ‘softer’ the deal, in terms of access to the single market, the more positive it will be for the UK economy.
The UBS Insight Briefing is one of a number seminars that UBS gives every year to keep clients and financial services professionals up to date with the latest economic trends and UBS’ views on how to make the most of the markets.
