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Volatility to dominate economy

(Xinhuanet.com)

11:08, February 28, 2012

BEIJING, Feb. 28 (Xinhuanet) -- In a world in which everyone is trying to shed debt, global investors should retain a preference for the US dollar, buy more bonds than equities and not worship gold as a safe haven.

That is the asset allocation suggestion for this year from Alexander Friedman, chief investment officer of UBS Wealth Management.

"As the global economy remains fragile, volatility will remain and credits will likely outperform equities over the medium term. A diversified investment strategy is key to more stabilized earnings," Friedman said.

According to Friedman, the deleveraging process gripping the developed world will likely continue for a number of years and remain a drag on growth. "Therefore in 2012 and beyond, yield is increasingly important."

Because the global economy is shadowed by enormous uncertainty, Friedman said the negative side of long-term secular trends, changing demographics, information velocity and developed/emerging growth disparities are exacerbated.

"Special events happen much more frequently and politics will play a destabilizing rather than stabilizing role," he said, referring to the political uprisings across North Africa and the Middle East that led to a spike in oil prices.

Dan Steinbock, research director of International Business at the India, China and America Institute, echoed the view on how politics has led to unrealistic assumptions about many current issues. The initial decision to grant Greece membership in the eurozone, he said, was motivated by political considerations, not economics.

As a result, Greece has been forced to adopt austerity measures, causing suffering that could have been avoided. The risk of contagion in the eurozone also emerged, Steinbock said in an e-mail to China Daily.

He said the outlook for the eurozone remained gloomy, with loaning, liquidity and solvency problems.

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