by Danielle Levy on Jun 02, 2010 at 10:34
Rothschild’s Private Banking & Trust’s head of investments Dirk Wiedmann has increased the firm’s overweight positions in gold and hedge funds in preparation for further volatility and modest economic growth.
Wiedmann highlights short-term fixes for long term problems as a key headwind facing the global economy.
‘The cracks in the financial system have been papered over and may not become critical for some time. Crucially, central banks will do all they can to prevent another recession. Policymakers will focus on short-term fixes and try to muddle through,’ Wiedmann said.
€750bn will not fix the Europe problem
Most notably Wiedmann argues the recent €750 billion stabilisation fund agreed by the EU, IMF and ECB will not solve the long-term structural problems in the eurozone or the unsustainable debt burdens of the ‘PIGS’ – Portugal, Italy, Spain and Greece.
He said this put a big question mark over the future of the euro. ‘The lack of unity among politicians and central bankers suggests a durable solution to deal with large structural deficits in many countries is still a long way off. Against that backdrop, and in a climate of risk aversion, we maintain our preference for the US dollar over the euro.’
As a result, the investment strategist said that high public debt levels coupled with currency volatility, tax rises, spending cuts in the developed world and monetary tightening in the emerging markets mean that the negatives outweigh the positives in terms of the investment case for equities.
Expect a gold surge in the second half
Wiedmann expects gold prices to surge during the second half the year in an uncertain environment, comfortably breaking the $1,300 per ounce level – particularly if sovereign debt problems in Europe continue to escalate to a point where a break-up of the euro seems likely, he said.
For other commodities the firm has a neutral to negative outlook, arguing that buying opportunities may be emerging if financial markets stabilise.
‘Following a sharp correction, prices of industrial metals such as copper, aluminium, nickel and zinc now much more reasonable. Much of the speculative excess has left this market and industrial metals are trading much more closely to their fundamentals,’ Wiedmann said.
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