First of all, I would like to introduce myself to Deutsche Bank Wealth Management clients. As Chief Investment Officer, I will help co-ordinate and drive our investment strategy. I look forward to meeting with as many of you as possible to discuss your needs and how we can help you.
Deutsche Bank Wealth Management comes into the world at an interesting time. Markets had a very turbulent start to 2016 and the global economy faces a number of clear challenges. There are also always “unknown unknowns” – risks that we are not yet aware of. But uncertainty should not preclude a reasoned response: a very disciplined investment process is essential in the current environment.
Let us focus initially on four “Cs” – China, crude oil, credit markets and central banks. China is not the only factor behind low oil prices – we believe global overproduction is more important. But doubts about the likely future strength of Chinese growth, and thus demand for oil, have cast a shadow over crude oil and commodities more broadly. The implications of this are evident in our third “C”, the credit market, where energy companies and, as a result, U.S. high-yield debt in general have come under pressure. Central banks are the fourth “C“. In addition to dealing with the issues outlined above, they need to convince markets that their policies are appropriate.
We do not need perfect certainty around the four “Cs” for markets to make a sustained recovery. But we do need to see signs of progress. Restructuring the Chinese economy will take many years and investors need to be confident that the Chinese authorities can manage this process of change. In the immediate future, the focus will be on whether they can engineer a managed and slow depreciation of the Chinese yuan – a rapid decline would cause concern. Progress on China may help underpin the oil market, but evidence of lower global production will be more important and this could take some time to materialize. Oil-price stabilization will send a positive message to credit markets, and help reduce (if not eradicate) volatility and liquidity worries. This in turn will make the central banks‘ job less difficult. Remember that the global economy is continuing to grow and that backdrop is still positive.
In the interim, what should an investor do? Consider a fifth “C” – composure. By citing composure, I am not suggesting that investors should sit tight and simply see current problems out. Composure is a variable like everything else and, at certain points, a change in investment strategy and direction will likely be required, although this will vary between investors. Balancing appropriate tactical changes to portfolios with investors’ strategic aims is likely to be particularly important in 2016. At Deutsche Bank Wealth Management, I am confident that we have the knowledge and the skills to help guide you through these times.