Investors may not like crowded trades, but there’s a clear consensus among the big money crowd at this week’s World Economic Forum in Davos, Switzerland, that the U.S. offers the safest investment harbor in a climate of growing uncertainty.
JPMorgan Chase & Co. boss Jamie Dimon set the tone at the start of the four-day gathering when he told CNBC that the U.S. “has the best hand ever dealt to any country right today.” The U.S. is the only major economy expected to grow at an above-trend rate in 2015, and corporate profits, employment and consumer confidence are strong.
A strong dollar and weak trading partners could threaten U.S. growth, of course, but that risk should be contained by a dovish Federal Reserve Board, participants said. Axel Weber, chairman of $2 trillion–plus wealth manager UBS, said the Fed would be unlikely to hike interest rates by more than a token 25 basis points this year. “We basically told all of our clients we’re overweight in the U.S.,” Weber added.
UBS is also bullish on China, which delivered a confident message here. In one of the Forum’s keynote addresses, Premier Li Keqiang acknowledged that expansion was slowing but insisted that Beijing would avert a hard landing as it shifted to a consumption-driven growth model. As David Rubenstein, co-founder of U.S. private equity firm Carlyle Group, told one panel, even if China slows to a 6.5 percent growth rate, that “is still spectacular” for a $10 trillion economy.
Mario Draghi succeeded in surprising conference participants with the size of the European Central Bank’s big new bond-buying program, but the move will do little by itself to solve the euro area’s structural and political problems. As UBS’s Weber put it, “Europe’s not back; the problems are back.”
The ECB action will put €1.1 trillion ($1.25 trillion) into markets over the next 18 months. Where will it go? Aside from a handful of emerging economies with improving fundamentals, such as India, much of that money will probably end up in the U.S., where it can earn higher yields and benefit from a stronger dollar, said one senior London-based banker.
Just about everyone agreed that Europe’s quantitative easing, following last week’s shock currency unpegging by the Swiss National Bank, reinforced the deflationary forces in the global economy. “I think it’s going to get harder” to generate strong returns, said Anthony Scaramucci, founder of SkyBridge Capital, a New York–based fund-of-hedge-funds manager.
The consensus loser at Davos? Russia. Its economy is being hammered by plunging oil prices and Western sanctions over the crisis in Ukraine, and the man who holds all the cards, President Vladimir Putin, lost the PR war to his Ukrainian counterpart, Petro Poroshenko. Whereas Putin was the most notable no-show, Poroshenko tugged at participants’ heartstrings by holding up a piece of pockmarked metal, said to be from a bus attacked by pro-Russian separatists, during a conference speech and appealed for Western support.
Russian Deputy Prime Minister Igor Shuvalov made the rounds, telling Forum panels and investor meetings that his country has the reserves to ride out the crisis, but the financial pressure was telling at the Wednesday evening cocktail hosted by Sberbank. In contrast to the Russian bank’s lavish party at last year’s forum, this week’s affair was more restrained, attendees said: They served prosecco, the modestly priced Italian sparkling wine, rather than French champagne.
