Double decoupling in the global economy
Twelve months ago, we reviewed the major trends we thought likely to influence the global economy and financial markets in the next decade. One year on, it is time to reassess the situation. Pictet’s Strategy Committee met in mid-October to analyse and update our view of the structural framework for investment decisions in the coming years.
Last year, we pinpointed deflation as the primary risk hanging over Western economies. Recent moves by the US Federal
Reserve Board (QE2) and the solid showing by government bonds (contrary to consensus expectations of a year ago) have vindicated our view. Our impression that emerging countries would experience a bubble in local asset prices, fuelled by a massive influx of capital fleeing mature currencies and unable to invest in China, has also been corroborated. Against this background, gold and local-currency emerging sovereign debt have lived up to expectations, posting gains of over 30% and
11%, respectively. Our play on peak cheap oil via oil services stocks has also paid off as a result of the BP accident in the Gulf of Mexico, even though, in the immediate aftermath, oil shares did take a hit. We were wrong in our renewable energy play which has failed to deliver owing to several governments’ decisions to slash state subsidies.