Investors tiring of equity volatility can take heart; the markets will stabilize in the second half of this year, marking the beginning of a “modest” recovery, according to a white paper released by Credit Suisse.
In the paper, entitled European Debt Crisis in Focus: Time to De-risk Portfolios, Credit Suisse managing director Bob Parker says equity markets are attractively valued from a historical perspective, especially in the U.S. and emerging markets. He asserts that the biggest fears of the past year—a global recession or a hard landing in China—are now less likely. With these fears diminished, investors are whetting their risk appetites.
The risk of the European debt crisis spreading has been effectively dampened by the European Central Bank’s move to provide liquidity to banks, as well as new commitments from eurozone governments to rein in their deficit spending. Meanwhile, low yields on money market instruments and government bonds will send investors back to the risk market once again.
The risk now is that fixed income investments will see their capital values crumble, sending bond yields higher.
“Should investors move back into equities and higher-risk assets, we could see yields start to increase later this year and into 2013,” he writes.