The persistent volatility and low market yields in the global economy show no signs of letting up, and investors trying to cope in this environment should look to dividend-yielding equities and medium-term high-yield bonds, said Allianz Global Investors (AGI) Global CIO Andreas Utermann on Tuesday at a New York press briefing.
Markets are punishing eurozone leaders for failing to fix the deteriorating economic picture, Utermann said. In fact, he noted that the time may be coming when investors should “think the unthinkable” and be prepared to pay safe-haven banks to hold their money, such as recently happened with Swiss and Danish short-term debt. (Switzerland on June 19 sold $844 million of three-month debt at a negative yield of -0.79%.)
If Greece drops out of the European Monetary Union (EMU), a collapse of the euro would not be far behind, and average investors and European citizens have no idea how dire the consequences could be, he added.
Euro Zone Collapse Would Make Lehman Look Like a ‘Blip’
“Lehman Brothers would be looked at as a blip compared with the collapse of the eurozone,” Utermann said, in reference to the Lehman bankruptcy that is credited with starting the global market crisis in September 2008. “There are no easy answers. The necessary reforms don’t seem to be materializing in the eyes of the Greek taxpayer. My sense is that we’ll continue to muddle through for some time.”
Utermann (left), who is based in London and serves AGI as global chief investment officer, says equities will probably remain highly volatile, and he advises investors to stay with their convictions and buy dividend-paying stocks along with high-yield intermediate-term bonds.
“Be brave. History tells us that bounces in a financial repression environment might be significant,” he told investors in a note written earlier this month after attending an Allianz investment forum in Hong Kong. “In times of moderate price-earnings ratios and low—not to say negative—real bond yields, dividends should be the main drivers of equity returns.”