Union Bancaire Privée: “let’s go for austerity but beware of inflation”

According to Patrice Gautry, UBP’s chief economist, we are now at the end of a cycle. The West’s growth rate has kept one step ahead of the spiral of debt that was fuelling it, but now we have reached the end of that road: household and national debt needs to be reduced.

“As testified by the frantic talks among leaders, the mounting political and economic threats unequivocally call for higher savings and a rebalancing of growth, which means more investment, less consumption and lower trade imbalances.”

UBP is one of Switzerland’s leading private banks and states being one the best-capitalised, with a Tier 1 ratio of 20%. Its core activity is asset management. UBP is based in Geneva, has offices in some 20 locations worldwide and has some CHF 60 billion in assets under management. In its latest report on the global economy, Mrs Gautry says that the two greatest challenges for states and central banks in years to come will be,

“firstly, to implement austerity policies that are able to reassure the markets without plunging their economies into a deep recession, and secondly, but just as importantly, to reduce the debt burden by creating a little inflation, but without allowing prices to spiral out of control.”

Chief Investment Officer Alan Mudie argues, too, that the traditional idea of portfolio management, based on the premise that riskless assets exist, has become obsolete.

“Government bonds can no longer be considered risk-free; this is why UBP continues to favour high-quality corporate bonds, except those of the financial sector. For investors who focus on returns, high-yield bonds offer attractive returns, even in this slow-growth climate, because of the current strength of companies’ balance sheets.

Mr Mudie adds that right now UBP is much more focused on return of capital than return on capital.

* The source of this article has been UBP, and it can be accessed here. Emphasis is ours.