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Credit Suisse CIO: trades to help you relax on the beach

by Robert St George on Jul 17, 2014 at 14:38

Credit Suisse CIO: trades to help you relax on the beach

With volatility not only so low, but having been low for so long, investors are understandably worried that a return to more normal levels could ruin their summer.

Mike O’Sullivan, chief investment officer for the UK and Emea at Credit Suisse Private Banking & Wealth Management, is nonetheless looking forward to a relaxing summer on the beach – and is allocating accordingly.

‘So much of what we do in our industry has been scarred by the credit crunch,’ O’Sullivan said.

‘Many of us have been conditioned by the high volatility of the financial crisis to think that this will return. We are gripped by the idea of volatility being too low.’

Yet O’Sullivan, who made it into Citywire’s Top 100 in wealth management in 2012, doubts that volatility will leap. ‘At the moment we are living in a volatility desert,’ he argued. ‘We are in a long-term low volatility environment.’

For O’Sullivan, volatility could remain at these low levels for the next 18 months. He noted that if volatility is viewed on longer timeframes, it is the sudden spikes that are the aberrations.

O’Sullivan is confident that volatility will continue to be suppressed by dovish central banks. ‘They will be very cautious before disengaging quantitative easing from the marketplace.’

In particular, he tips US Federal Reserve chair Janet Yellen to be ‘super cautious’, after hints of earlier than expected tightening in her first press conference gave the market jitters.

In the CIO’s view, the Federal Reserve will start to hike rates in early 2015. He adds that equities have risen into such action before then, flattening on a historic basis. That means several more months of upside until the time comes to derisk portfolios.

O’Sullivan accepts that there may be a ‘slowing of macro momentum after the summer’, but believes this will be offset by the potential for additional central bank intervention. ‘Anyone expecting a correction will be frustrated.’

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