Private banking CIO outlook 2015: Julius Baer

Further reading

All the CIO interviews

What were the surprises of 2014?

Geopolitics was surely full of them. Neither the conflict on the Crimea nor the saber-rattling in the South Sea were to be expected. 

But, unfortunately, these tensions are unlikely to be the last. Geopolitics will continue to create both significant challenges and opportunities for issuers and investors of financial securities. 

The spectacular collapse of oil prices was also a surprise by speed and magnitude. Whether it will be a benefit or a drag on global growth will remain the surprise for 2015.

What regions are you expecting to see the most growth this year?

Talking energy: clearly the biggest consumers will profit from an unexpected tailwind; those will obviously be the most industrialized countries. 

However, in absolute growth projections, Asia will still provide most of the heavy lifting. China remains the world’s biggest economy – in purchasing-power terms – and will continue to advance fast. India should do well, too, and so should much of southeast Asia. 

In Latin America, Mexico stands out for growth dynamics and scale of the economy, while further north, we expect both the US as well as Canada to do well, economically speaking. In Europe, there will be slim pickings but arguably not as awful as many fear. That’s courtesy to cheap oil and a bit of economic tailwind, plus some good reforms in the southern periphery. 

Africa remains the silent winner of globalization. Most of the continent will continue to display the world’s highest growth rates, albeit from much lower levels, which is why Africa growth still doesn’t matter as much to the world as the impressive dynamics would suggest. For Russia and the Middle East, they risk being mired in a dangerous spiral of conflict and escalation.

What is your view on fixed income for 2015?

The most important view is that USD long yields will remain lower for longer. They may well remain depressed until 2020 as structural excess demand from pension funds and insurance funds, as well as continued financial repression in the west, weigh heavily on them. 

And frankly, there is pretty much the same argument for maintaining an identical view on European as well as Japanese yields.As long as most other big currencies are directly or indirectly pegged to these, this is essentially a global view.

Which asset classes do you expect to outperform? 

Plain and simple: equities. They offer the highest risk-premium and the best position for capital providers in today’s world. 

Biggest unknowns/risks of 2015?

In no particular order: geopolitics; epidemics and related scares; monetary- and economic policy-experiments; competitive currency devaluation; hysteria and herding in financial markets, combined with the media exacerbating such cycles.