Zurich - Arabstoday
Investors should move cautiously back into risky assets now the Greek debt restructuring seems to have headed off a euro crisis, as markets could turn sharply if the supply of cheap money dries up, according to Swiss bank UBS. Chief investment officer Alexander Friedman said much of the recent good news had been driven by central banks, which have provided $2.2 trillion (Dh8 trillion) of liquidity to head off short-term risks to the financial system, pushing risk assets like equities to year highs. \"Cheap money is like an addictive drug to the markets, so it is important to consider whether it will continue and, if not, what the implications will be,\" Friedman said a monthly letter to clients. \"While the immediate tail risks have diminished, the underlying issues of unsustainable government debt, sub-par growth and global imbalances have obviously not gone away.\" Threats Other threats to global growth, such as a sharp slowdown in China or a US recession, also appear to have declined, although a spike in oil prices due to geopolitical pressures could still boost inflation and hit growth, Friedman said. Even so, he said, the continuing injection of central bank liquidity had greatly reduced the risk of a European bank failure, spurring UBS to up its equity allocation to neutral in February from underweight previously. The bank favours US and emerging market equities, where earnings appear more robust.