By Satish Kanady
DOHA: With the developed economies showing signs of strong recovery, it is time for the investors to take a break from investments in the fixed income and go for equities, a top investment strategist has said.
Gulf investors should review the perceived safety of bonds and fixed-income portfolios, Gary Dugan (pictured), Managing Director and Chief Investment Officer, Asia & Middle East, Coutts, told The Peninsula in an interview.
The global economic turmoil has led to unprecedented demand for fixed income as investors moved to protect their portfolios. Demand sent prices rising and sent yields, which is now moving in the opposite direction to prices, tumbling to record lows. Investors are nervous that that their real wealth in these assets is being steadily eroding.
The central bank policies in Europe and the US would mark an end to a three-year bond bull market and investors will have to be prepared for lower returns. So the best way is to move to private equities or hedge funds, Gary said.
So far this year, government bonds of some of the key developed economies have delivered zero to modestly negative returns while investment-grade corporate bonds have only performed marginally better.
Long-term inflation is another enemy of bonds because the purchasing power of bond’s fixed interest rate is set to fall. The expectations of rising inflation lead to investors demanding higher yields, which pushes bond prices lower. Such a scenario could leave investors nursing capital losses if they do not hold on to bonds until maturity.
Coutts analysts have estimated consumer price indices have increased by 10 percent in the US, 11 percent in the eurozone and 19 percent in the UK. In the same period, the return on cash has been almost zero. Government bonds, which could once be relied upon and income that was higher than inflation, can do so no more. Gary noted institutional investors in Asia are increasingly focusing on equities and hedge funds.
The Peninsula
