O'Sullivan - on safe havens, gold sell-off & Asian investors' concerns

25 Aug 2011 Bloomberg
Michael O'Sullivan is head of UK research and global asset allocation at Credit Suisse Private Banking.

[The gold price is selling off the most since March 2008. This in reaction to the durable goods figures in the States beating estimates which indicates perhaps that the recession concerns is not going to happen. What are your thoughts?]

A very dramatic move indeed. Strong gold is really the other side of the trade to capital being sucked out of the banks to weak equity markets. I think we also had a margin change from the commodity exchange last night. A recognition that things perhaps had got a little heated. Also the economic data has been weak and mixed. And this negative loop of talking ourselves into recession. So perhaps risk aversion is beginning to find a bottom. So the safe havens (gold, treasuries, swiss franc) have perhaps reached extreme levels.

[Do you think thought that with the concerns about the instability about the US economy and around the world that safe havens will continue to the investment of choice for the next 6 months?]

I think they remain the investment of choice for the margin investor but perhaps not for long more. There is I think a growing sense of positioning risk in many of these assets. Certainly on paper on a fundamental basis a lot of them are looking quite stretched now.

[What about risk tolerant investors? Are there many risk tolerant investors out there you think?]

Well I've been in Asia this week and the perspective is a little bit different. I think there are strong concerns about policy making in Europe and also to an extent in the US. But in the region growth is high. BHP results and commentary in the last 24 hours. So there are people out there with cash. They are ready to invest that cash. I think still equity markets will be choppy as we digest the implications. But there are signs we are beginning to find the bottom.

[Where are the pockets of opportunity?]

In western companies exposed to Asia. In all of the volatility there is also a danger to forget the mega trends, the very long-term trends. The emerging consumer -- food security is another issue in the long term. So it's important to get a sense of perspective.

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