Investment advisers bullish on bonds, gold

Dubai: Stick to cash, corporate bonds and gold: this is the best advice one could give to wealthy individuals, as most investors scramble to find a better solution on where to park their cash.

Investment advisers across the world are preferring to keep their heads low with the severe decline of global equity markets and the more gradual arrival of an official recession in many developed economies.

The days of double-digit returns on equity investments are long gone, and may not return for a while, and tightening credit conditions have more or less achieved a stranglehold on negotiating cheap finance. All asset classes have suffered, some more than others, evidently.

So what does the chief investment officer of one of the region's longest-established international banks recommend to regional investors fretting about what to do with their money?

"Stick to cash, corporate bonds, and gold," is the message from Merrill Lynch.

"Precious metals, led by gold, could enjoy a more sustained rally with gold benefiting from a weakening of the dollar in the second half of the year," said Gary Dugan, Merrill Lynch's chief investment officer for Global Wealth Management in Europe Middle East and Africa (EMEA) region.

"Selective investment in high-grade corporate bonds could also provide attractive returns." And of course, the era of "cash is king" is already well underway.

Gold prices are forecast by Dugan to hit $1,150 an ounce (Dh4,223) in the second quarter of 2009, driven by the need for security among investors, and the eventual weakening of the dollar.

The message from other investment strategists is similar. Parking cash safely in banks is an attractive option for the time being, but "at some point people will begin to look for yield again ... and the first place they will look is in the corporate bond market, internationally," according to John Paul Smith, global equity strategist at Swiss private bank, Pictet and Cie.

Dugan is currently in the Middle East to present the bank's forecasts and outlook for the year ahead to regional clients.

In his self confessed "bleak but honest" assessment, Dugan said, "It's going to be a decisive year for the world economy ... [and] Government intervention will play a critical role in determining whether we experience a relatively short and sharp downturn - which could draw to a close within the next 12 months."

In the UAE, Merrill Lynch has forecast GDP growth at 3.5 per cent this year, although Dugan admitted that this figure is likely to be revised lower.

There is broad agreement among economists and analysts about a contraction in real GDP growth in the UAE this year.