Private banking CIO outlook 2015: Credit Suisse Private Bank
US growth, dollar appreciation, China slowdown and potential geopolitical fallout from lower oil prices: Michael Strobaek, global CIO for Credit Suisse Private Bank, discusses his firm's outlook for the year ahead.
Q: What were the surprises of 2014?
The size of the drop in oil prices;
The decline in 10-year US bond yields below 2% in late 2014, even as the economy recovers and the Fed is moving toward the first rate hike;
The quick escalation of the Russia/Ukraine tensions;
The sharp drop in German Bunds, even as the German economy did comparably well and the focus of investors was more on peripheral bonds;
The Bank of Japan move – not the move itself but rather the timing.
Q: What regions are you expecting to see the most growth this year?
In terms of just the pure growth rate, we expect non-Japan Asia to grow the fastest (6% real GDP growth in 2015), followed by Middle East and Africa (4.2%), the US (3.0%), Latin America (1.7%), CEE and Russia (about 1.7%), the EMU (1.0%) and Japan (0.9%).
In terms of growth dynamics, we think the US economy will be the most dynamic bloc, as the recovery there is entrenched and self-sustaining. Emerging market (EM) growth should be somewhat shakier. For instance, we expect Chinese growth to decelerate somewhat in 2015.
Q: What is your view on fixed income for 2015?
We have a neutral outlook on fixed income, as easy money in the eurozone and Japan balance Fed tightening. Within fixed income, high-yield bonds are looking more attractive again after the recent repricing. We also think local currency EM bonds have outperformance potential, as monetary policy in the region could turn more supportive. Generally we do expect bond yields to move higher in 2015, but this will most likely be compensated by coupon payments, which is why we have neutral total return expectations.
Q: Which asset classes do you expect to outperform?
Equities are likely to have the best performance among the major asset classes. Within equities we prefer Japanese, European and Australian stocks due to solid earnings growth and implicit support from central banks. We believe that the USD is likely to appreciate further.
Q: Biggest unknowns/risks for 2015?
Greek elections and negotiations for a potential debt restructuring;
Low oil prices could lead to escalation of political tensions, eg to increasing instability in the Middle East if the US signals that its geopolitical interests in the region are diminished due to the shale oil and gas production;
Potential credit events in EMs could have a contagion effect across asset classes;
Economic growth surprises to the downside, volatility spikes further.