Dubai, 10 April 2013: The hunt for yield has dominated financial market performance in the first quarter. Nonetheless, uncertainty about the markets' further performance makes the second quarter 2013 a period of transition. The monetary-driven global economic recovery will continue into the second quarter 2013; however, the economic slowdown will spark renewed euro concerns in the second half. Consequently, a so-called great rotation out of bonds into stocks will not take place. Instead, equity investors will continue to focus on high-dividend stocks from the consumer staples, healthcare and insurance sectors. Demand for defensive currencies will also pick up. The Swiss franc and Japanese yen are likely to appreciate once risk appetite in financial markets eases.

Bank Sarasin expects growth will continue to pick up in the second quarter 2013. The US economy is still profiting from a real estate revival. This boosts household wealth and stimulates growth in consumption. Both consumption and investments will make a positive contribution to growth in the first half of 2013. China also profits from the growth stimulus provided by its new government. However, other far-reaching reforms will be necessary to negotiate the transition from an export-driven economy to a consumer-led model. Euroland is also recovering, albeit at a low level. Nonetheless, the rising expectations for a powerful, long-term upswing are premature. Policies to induce the necessary fiscal consolidation will dampen global economic growth until the end of the year. The so-called «sequestration» will slow growth in the USA, which will also feed through to Euroland. Since no euro area member state can reduce its debt level without growth, euro worries are expected to resurface in the second half of the year.

Jan Amrit Poser, Head of Research and Chief Economist at Bank Sarasin

Again this year, we anticipate a dip in growth in the second half. The dampening effects on consumption, which are inevitable due to the necessary fiscal consolidation, are too great.

Philipp E. Baertschi, Chief Strategist at Bank Sarasin

Overall, we expect key equity indices at the end of the year to be lower than they were at the start of the year. We are convinced that it is possible to achieve a positive return in the second quarter with the right stock selection.

Turnaround in the bond market

An array of positive factors led to a rise in US yields in the first quarter. In the second half of the year, US consumers will start to feel the drag of the adopted fiscal measures. The second quarter will be a period of transition: a rise in yields is expected at the beginning followed by a turnaround in the bond market towards the end of the quarter. Euroland won't be able to escape the slowdown in the US economy in the second half of the year. This will also be accompanied by a decline in German yields towards the end of the year. With a deterioration in the economic situation, Swiss interest rates are also likely to trend lower again. On the other hand, the appeal of emerging markets remains consistent, despite the disenchantment in the first quarter.

Defensive currencies in the starting blocks

As part of the Sarasin economic scenario, leading economic indicators are expected to peak in the coming months. Defensive currencies will be in demand again. The Swiss franc will rise towards its lower limit. The Swiss National Bank will not hesitate to undertake new foreign currency purchases if needed. The Japanese yen will also be tested. It is likely to appreciate when risk appetite in financial markets subsides. Growth fears are also likely to benefit the US dollar because the greenback is negatively correlated with the stock markets. On the other hand, the euro runs the risk of currency losses because a weaker economy could reignite the debt crisis. Also, the cyclical currencies, the British pound, Swedish krona and the Aussie dollar, will struggle against economic headwinds. The Asian emerging market currencies will profit in the long term from the solid fundamental data of their respective countries.

Continuing bull market or sell in May?

Despite the resurgence of euro worries, the global equity markets managed to score big gains in the first quarter 2013. This raises the question of whether the long-awaited «great rotation» will occur and whether the next bull market is just around the corner. Due to the economic tailwind, the low interest rate environment and the attendant high risk premiums, the equity markets are likely to stay on an uptrend for now. But once the fiscal policy headwind becomes predominant, disappointments will follow. The stock markets are expected to follow the same seasonal pattern as they did in the last three years. The trend towards high-growth dividend-paying stocks should therefore continue. These stocks are mostly found in the consumer staples, healthcare and insurance sectors. Real estate stocks have already adjusted to the low interest rate environment and have the lowest upside potential, which explains why Bank Sarasin is underweight this sector. Despite the weak performance in the first quarter 2013, Bank Sarasin believes emerging market equities offer the greatest potential. The news flow from China plays a very important role in this respect.

SMI rally is over for now

Two factors suggest the SMI rally was due to one-off effects. First, the weakening of the trade-weighted franc in recent months led to a rise in earnings expectations. The latter are very susceptible to movements in the Swiss franc because Swiss companies generate the lion's share of their profits abroad. The second reason for the stronger performance of defensive markets was the hunt for yield. In addition to growth expectations, the global stock market rally in the first quarter 2013 was mostly driven by a decline in risk premiums. These stocks are mostly found in the consumer staples, healthcare and insurance sectors. Since the SMI and the FTSE compared to the MSCI World have relatively high weightings in these sectors, both indices directly profited from capital inflows.

Safra Group
The Safra Group is a highly regarded name in global private banking with a successful long standing history. Safra banks include J. Safra Sarasin Holding and subsidiaries, Banco Safra and Safra National Bank of New York, all built on strong financial foundations. As of December 2012, the Safra Group had aggregate stockholder equity of approximately USD 12.9 billion and total assets under management of USD 200 billion. The Safra banks are in 156 locations worldwide, and have over 7,700 employees.

J. Safra Sarasin Group - Sustainable Swiss Private Banking since 1841

As an international group committed to sustainability and well established through its banks in 30 locations in Europe, Asia, the Middle East and Latin America, J. Safra Sarasin Group is a global symbol of private banking tradition, emphasizing security and well-managed conservative growth for clients. At the end of December 2012 it managed total client assets of approximately CHF 130 billion and employed around 2,140 staff, with stockholder equity of approximate CHF 3.4 billion.

Bank Sarasin-Alpen (ME) Ltd - www.sarasin-alpen.com
The Sarasin Group has its roots as a leading Swiss private bank. The Sarasin Group is represented in the Middle East and South Asia with offices in Abu Dhabi, Bahrain, Doha, Dubai, Mumbai, Muscat and New Delhi. Sarasin-Alpen is incorporated as Bank Sarasin-Alpen (ME) Limited in the UAE, as Bank Sarasin-Alpen Qatar, LLC, in Qatar, as Sarasin-Alpen (Bahrain) BSC (c) in Bahrain, as Sarasin-Alpen LLC, in Oman and Sarasin-Alpen India Private Limited in India. These cater to the requirements of private and institutional clients from the Middle East and South Asia.

For more information please contact:
Sameena Ahmad | Corporate Affairs
T: +971 (0)4 363 4300
e-mail: sameena.ahmad@sarasin-alpen.com

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© Press Release 2013