Why One Investor Is Ignoring Wall of Worry
By: Dramatic headlines on US debt and fears over a Greek restructuring of debt are not worrying one investor, who tells CNBC investors should be focusing on some good news from China, not on the wall of worry.
“The past month has seen a number of dramatic headlines, but which of them was really new?” Giles Keating, the head of private banking research at Credit Suisse, pointed out in an interview with CNBC on Friday.
“Standard and Poor’s decision to move the US credit rating outlook from 'stable' to 'negative' was confirmation of something that was widely known already, and it may be helpful if it speeds up the slow moving political process of deficit cuts,” he added.
“Discussion about Greek debt restructuring intensified but is also not new, and although it caused Greek, Irish and Portugal debt to sell-off, it had only a minor impact on the broader equity and Foreign exchange markets,” Keating noted.
Of greater importance than these two negatives is Chinese premier Wen Jiabao’s decision to discuss greater flexibility for the yuan, he said.
“Coming just a week after Brazil allowed its currency to rise after a long period of resistance, and along with other statements and currency moves in Asia, there seems a clear signal that emerging countries are finally collaborating in allowing currency strength,” according to Keating.
Given the implications such a move from China would have on trade imbalances, developed world competitiveness and emerging market inflation, Keating believes a strengthening yuan could underpin a sustained economic recovery.
“Our shorter-term tactical view over the next few months is slightly more cautious, as the world economy passes through one of the marginally slower phases that is normal in any upswing, and as the markets digest risk factors, such as ongoing uncertainty over Greek finances and over politics in the oil producing regions,” said Keating.
However, on a six to 12-month view he is positive on equities, commodities and real estate while underweight bonds.
“Our confidence about global economic growth is based partly on the continuation of supportive monetary policy,” said Keating.
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