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According to Franck Nicolas, Head of Global Asset Allocation & ALM at Natixis AM, all the effects of this catastrophe are, at present,
difficult to quantify but do not necessarily compromise global growth
March was marked by the events that hit Japan. The worst seems to have been avoided even if it is too early to draw all the conclusions. The consequences for this already highly-indebted country are numerous: the paralysis of a part of Japanese production,
a major medium-term reconstruction effort, the possible questioning of nuclear and the impact on conventional energies. All the effects of this catastrophe are, at present, difficult to quantify but do not necessarily compromise global growth.
Natixis Asset Management has nonetheless
reduced the risk in its model portfolio by
adopting a more prudent stance when faced
with the proliferation of major social unrest in
the Near and Middle East, soaring commodity
prices that are liable to be driven to new
highs by geopolitics, the EC B discourse on
potential monetary tightening as of April and
the difficulties of the Bank of England and a
number of emerging regions in keeping the
lid on inflation.
Fixed income
For the moment, within fixed income, the
priority should be on holding significant
reserves of cash and inflation-linked
bonds. The exit from accommodative
monetary policies (quantitative easing is
expected to end this June in the United
States) is approaching and imported
inflation risks could see a rise in long-bond
yields.
While credit represents a moderate
risk, its absolute performance could be
impacted by the possible rise in interest
rates. Lastly, investing in emerging bonds
seems risky since inflationary pressures
are present in several of these regions.
The monetary authorities are effectively
going to have to make a choice to the
detriment of short-term growth at a time
when food supplies are expensive.
Equities
Natixis Asset Management has slightly
reduced its exposure to equities by
neutralizing an over-weight posted over the
past few months and reinforced since the
end of 2010. A return to the more defensive
market segments (e.g. return to the UnitedStates, adding to positions in the cyclical
sectors that have been laggards in Europe,
lightening of positions in the financials that
will be subject to new solvability tests by
the summer, etc.) has also contributed to
reducing overall risk.
We now have an underweight on emerging
equities given the temporary uncertainties
in these regions. Note: global economic
growth, corporate earnings and liquidity all
remain positively oriented.
Currencies
There are still concerns about Japan since
it is very tempting to finance some of the
reconstruction work by repatriating the
capital currently invested in US bonds. This
could lead to negative effects by driving the
yen higher relative to the dollar. Some G20
central banks have thus mobilized to try to
curb the rise in the yen. In the same vein, but
for other reasons, the emerging currencies
continue to be favored by the interest rate
tightening inherent in combating imported
inflation. The ideal policy mix remains to be
found since this phenomenon is countered,
in particular, by currency appreciation but
remains detrimental, on the other hand, to
a country’s external trade.
Commodities
Commodity prices have remained firm,
stoking overall inflation in several world
regions with risks of transmission to core
inflation via production costs
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