Companies holding sustainable pricing power will be among the strongest performers in coming months, says ABN AMRO Private Banking in its investment outlook for the third quarter.

The bank predicts the current economic soft patch will intensify, primarily owing to the restrictive economic policies and high oil prices we are currently seeing, yet believes a double-dip recession is unlikely and has therefore chosen to remain marginally underweight in its risk position through its asset allocation.

ABN AMRO continues to back hedge fund performance over real estate, but sees greater potential for growth in companies that hold superior pricing power with their products, which they would have developed through innovation, industry dominance, wealthy customers and brand loyalty.

“Companies with sustainable pricing power provide a good bridge between short-term risks and medium-term opportunities. As the earnings cycle matures, a slowdown emphasises the need to select ‘pricing survivors’ and companies that are driving change across sectors,” said Didier Duret, chief investment officer of ABN AMRO Private Banking.

In its report, the bank highlights a number of global market leaders across a wide range of industries which it believes hold significant pricing power, and will therefore prove to be profitable investments in the near term, including Apple, Caterpillar, Coca-Cola, Proctor & Gamble, Nestlé and Starbucks. “These companies have the resilience to cope with short-term economic setbacks, as well as the capability to innovate and expand within their sectors in the future,” said Duret.

ABN AMRO’s broader investment outlook remains unchanged, with its balanced model portfolio weightings staying the same as they were in its previous quarterly investment outlook report, with 22 per cent in cash, 28 per cent in bonds, 40 per cent in equities and 10 per cent in alternative investments.

In fixed income, the bank prefers financial, covered and high grade credit bonds to government bonds and has invested in particular in Spanish corporate bonds in an attempt to boost yields. The bank also sees value in event driven, relative value and CTA hedge funds, as well as growth markets and small buy-out markets in Europe and Asia, as part of its alternative investments strategy.

The bank predicts both commodities-based and emerging market currencies will weaken against the US dollar and the euro, and expects these two currencies to remain neutral against each other. ABN AMRO therefore believes the euro will strengthen somewhat over the next quarter, which is interesting given that it also cites a number of serious threats to the eurozone as it attempts to solve its debt crisis.

The bank believes a fresh approach from the European policymakers is needed as Greece appears to be veering off the recovery course that has been set for it by the IMF. The bank claims that Greece’s expenditure continues to exceed its income, and a debt restructure will not solve the problem of another rapid debt build up. Furthermore, there is a high risk of contagion to the other peripheral countries in the eurozone, according to the report, which could have disastrous implications for the European economies.

ABN AMRO Private Banking saw an increase of 2.4 per cent in its total assets under management over the first six months of 2011, which now stand at approximately $241.4 billion.