Concerns grow
These concerns range from the impact of higher interest rates in the US, to the health of the European banking system, the debt problems in China, the effect of ongoing loose monetary policy by many of the world’s major central banks.
In addition, investors have expressed ongoing concerns about the outlook for Japan, while softer commodity prices due to a slowdown in China have hurt the prospects for developing nations like Brazil, Russia and some African economies.
“There is quite a lot out there to be concerned about and it is not going to go away in a hurry,” said Julian Chillingworth, chief investment officer for Rathbones.
“There is a lot at play here, meaning growth around the developed world probably is not going to be that dramatic over the next few years.”
Caution rules
Chillingworth said the backdrop to these concerns can be traced back to the financial crisis of 2007-09, which was managed by a combination of government spending and central bank support.
“That meant we avoided a deep recession as occurred in the 1930s, but the recovery is prolonged and lacklustre.” Not surprisingly, Chillingworth said this has made investors very cautious.
But there may be another factor at work, at least behind the stockpiling of cash, which is that once some of these concerns have passed, new opportunities are around the corner.
Frédéric Lamotte, global head of market and investment solutions at Indosuez Wealth Management, said holding liquid assets is a key issue for what might happen in the coming months.
“We are prepared for what could happen in the summer. We have to be able to grasp these opportunities, and for that you have to keep the powder dry.”
