Advisers are like 'penguins on an icecap' because of the challenge generating a reliable income for clients, according to the chief economist at Mirabaud.
Gero Jung said economic growth was likely to continue globally but long-term problems such as lack of productivity and population growth would mean the pace of global growth would remain very low by historical standards.
He said economic growth was at a level where equities looked like a good investment when compared with lower risk assets. But he added that, with growth rates muted, the income from bonds would be low.
Mr Jung said: "Current market expectations show that government bond yields for advanced economies will remain in a ‘lower for longer’ environment – with more than half of the total sovereigns yielding between 1-2 per cent only.
"In addition, nearly 20 per cent of major government bonds market yields are expected to remain in negative territory – little changed from now – meaning that investments are guaranteed to lose money if held until maturity.
"Hence, the search for yield remains on top of investors’ agenda, and that is why bonds with more promising yields – like debt securities issued by solid emerging market economies – will remain of interest.
"Overall, the current situation resembles penguins on an icecap. When faced with a melting ice block, penguins have the option of either diving into the water or budging up together.
"In our view, the penguins trapped on an icecap are likely to stick ever closer to each other, similar to investors in the search for safe assets that do not lose money. The penguins will not take a dive, for now."
The equity markets Mr Jung favours include emerging markets and Asia as he feels those economies will benefit from any improvement in global economic activity.
The biggest threat he sees to global growth growth is from a deterioration of the trade dispute between the US and China.
Mr Jung said: "Signals that global economic activity will pick up in the near term are convincing, and suggest that a ‘Goldilocks’ scenario for financial markets - of moderate but stable growth, together with the absence of inflationary pressures - will continue.
"While uncertainty on the future global trading system and international cooperation remains in place, the 2019 shift of global central banks towards more accommodative policy is likely to manifest its stimulating effects soon.
"A clear positive sign is coming from industrial activity, with latest survey data signaling a turnaround. For instance, looking at industrial heavyweights, manufacturing is improving in Germany, where the automobile sector in particular suffered from a variety of challenges."
david.thorpe@ft.com
