On the other hand, Wiedmann is more positive – “comfortable” – with his hedge fund exposure, global macro strategies in particular given their lack of correlation to equity markets.
About equities, he says: “Even after the recent fall in markets, sentiment indicators have not yet fallen to extreme levels and although valuations are generally supportive, they often take a back seat at times when volatility is high.
“In our view, equity markets are currently priced for very weak growth, but are not yet braced for another long downturn.”
A weak economic outlook, including exceptionally low interest rates for at least the next 12 months, means he is a fan of high-quality government bonds with durations of up to five years. This changes over the long term as he argues they are then expensive and over-valued, with poor fundamentals.
“By contrast, investment grade corporate debt looks well supported, and offers more attractive yields. We therefore continue to favour corporate over government bonds,” he adds.
He is more bullish on gold in contrast to a poor outlook for commodities as a whole whereas his long term view of property is “attractive as a tangible asset with fairly predictable cash flow”.
The background to these views is that developed economies have slowed to a crawl, eurozone GPD may already be shrinking, Japan is struggling and German business confidence and manufacturing activity have taken a turn for the worse.
Wiedmann says: “Manufacturing surveys around the world are also pointing to a slowdown and the recent signs of a downturn may become self-fulfilling if consumers delay spending and businesses freeze plans to invest or create new jobs.
“Yet while recession is looming, we do not think it is inevitable: the economic data are not yet conclusive, with some leading indicators pointing to a stabilisation in global economic activity in the months ahead.”
His conclusion is for low and sluggish growth for developed economies over at least the next five years.
