Bank Sarasin has predicted a robust outlook for the global economy in its latest global view investment outlook for the second quarter of 2011. With interest rates stabilising in the US and EU, the positive growth seen in the equity markets and the normalising of the foreign exchange market, the firm has reason to be positive for investors.

The Swiss private bank said prospects for global growth need to be scaled back because of the potential dampening effect of unrest in the Middle East and North Africa, the Japanese earthquake, and debt woes in parts of the Eurozone, most recently in the case of Portugal, which has asked for a EU bailout.

According to Sarasin, the most favourable areas of investment encompass the sectors of commodities and oil. With the unrest in the Arab world increasing the price of oil, investment in countries such as the United Arab Emirates, Dubai, Qatar and Kuwait where the political situations are relatively stable, could prove a worthy bet. Russia could also benefit from the higher oil prices, giving a boost to its medium term economic prospects.

Sarasin also reports that the prices of commodities have maintained a positive trend over the last quarter and remain in demand thanks to global economic development. Broad-based commodity indices are expected to yield 15 per cent over the next 12 months, however the price of base metals and gold are expected to drop if the European Central Bank raises interest rates.

“Provided the acceleration in growth in the USA and Europe continues… we forecast significant upside potential for the equity markets in the coming months,” said Philipp Baertschi.

In particular Sarasin has singled out European equities as having the greatest potential for investment, especially the sectors of energy, materials and finance.

Although the Persian Gulf stands to profit from the rise in oil prices, Sarasin said investment opportunities in the services industry, financial and tourism sectors offer little potential at this time. It said that the revival of the Indian markets may be short-lived, especially since The Reserve Bank of India will have to raise interest rates to control inflation. This slowdown is expected to continue until the summer, with Indian equity markets potentially under performing other emerging markets. 

Sarasin predicts a stabilising of both US and EU currencies and interest rates over the forthcoming few months. The US is expected to concentrate more on the issue of unemployment and the European Central Bank will hike rates at only a very slow pace - 0.25 per cent over each quarter, due to continued concerns about weakness in a number of “peripheral” Eurozone countries.   

Although the US dollar, the euro and the pound sterling have dropped to record lows this week, Sarasin predicts that all three currencies will stabilise. Provided the US Federal Reserve adjusts its outlook to reflect the improvements in economic conditions, the bank states that the dollar should recover. Due to the fact that the European politicians have now taken action to resolve Europe’s unstable economy, Sarasin believes that a fresh escalation of debt crisis is unlikely and the euro should stabilise. Sarasin also reports an interesting development in the Chinese currency. Export companies can now invoice or settle cross-border trade in the Chinese currency - the renminbi - meaning that the currency is likely to become more important in future foreign trades.