Investment View: Falcon Private Bank Keeps Faith In The Power Of The BRICs

Chrissy Coleman

17 December 2012

Like many of its contemporaries in the industry, Falcon Private Bank believes BRIC nations will continue to be the dominant source of investment growth, and consequently the firm’s strategies remain focused on this macro-economic view.

At a press conference held by the Swiss wealth management boutique last week, chief investment officer, David Pinkerton gave his year end perspective and a general outlook for 2013.

“World future growth will be driven by the frontier or the second tier emerging markets. This is where the population growth is and these markets will make up 88 per cent of the world’s population by 2050, while at the moment these equity markets represent only 20 per cent of the world’s equity market capitalisation,” he said in a statement, following the press conference.

Pinkerton named second tier emerging markets like the Philippines, Mexico and other South East Asian markets as top performers in the equity sector, despite being “off the radar pre 2007”. Their success is largely a result of avoiding overdependence on demand from the developed world for exports, he said.

However, there some notable exceptions, according to Pinkerton, like China, the world’s second largest economy, which had another disappointing equity market return – since its near peak in 2007, the Shanghai composite is down approximately 63 per cent in US dollar terms. In comparison, other major equity markets have fared better to close the gap since the 2007 highs: the US’s S&P 500 and the German market index, are only 10 and 7 per cent below their December 2007 levels, respectively.

When it came to recommending specific stock categories, Pinkerton favoured global companies with emerging market consumer themes, naming luxury companies like L’Oreal and Prada as examples. “We like stories like that,” he said, referring to global companies listed on the New York or London Stock Exchange, which benefit from the safety of a strong presence in established economies and also have exposure to growing emerging market demand.

With regards to bond markets, Pinkerton said: “Emerging market bonds performed exceptionally well as the global quest for yield enhancement drove bond investors further afield into smaller and less deep bond markets.” As developing economies’ credit profiles are improving, and those of the developed countries worsening, he expects the trend of high demand for this asset class to continue. Though, Pinkerton did admit that currently, “some are probably overpriced”.

Moving on to precious metals, Pinkerton said that demand for physical gold from emerging markets has “only just begun” and the fact that markets are devaluing their own currencies to stimulate exports is also very constructive for this market. He consequently predicts that gold is just entering the third phase of a bull market, having flourished since 2000.

Earlier this year, Falcon Private Bank bought one of the oldest names in banking history, London-based Clariden Leu, from Credit Suisse, bringing the value of Falcon’s assets under management to approximately $16 billion.