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11.12.2009

UniCredit Private Banking Asset Allocation and Outlook for 2010:
Will the stock exchange thaw continue?

  • Liquidity driving rally
  • New demand for riskier assets, therefore shares still "overweight"
  • Setbacks following considerable increases possible at any moment

After share indices of many Western countries have increased by more than 60 per cent from the low in March, there is growing concern about how long the party on the stock exchanges is going to last. At the same time it has to be taken into consideration, however, that the currently sufficient liquidity favours investment in riskier assets. Therefore, we are not opposing the trend and keep riskier assets (shares, corporate bonds) at "overweight". Nevertheless, we consider it realistic that 2010 will be an overall more difficult year than 2009. The fast rebound after the low following the crisis is over, and development is now not about stepping away from the edge (as was the case this year) but about sustainability of recovery. Should new doubts arise or interest rate changes of Western issuing banks become predominant, the share market could become nervous again.

Shares: Maintain overweight! Without a doubt, most share markets have experienced an excellent comeback since the low in March, but we should not forget how fast and dramatically the crash had come about. Between September 2008 and April 2009, investors were riding a roller-coaster. At first, markets were convinced that a severe and long depression could not be avoided. Then, however, they focused on a solid economic recovery within less than six months. From our point of view, the combination of low inflation, low interests, high liquidity and high productivity favours rising share prices. In 2010, share indices of developed countries should reach the pre-Lehman levels, however, there will be hardly any consolidation in the meantime.

We confirm our preference of the euro area, which deserves an overweight rating as a cyclic market. Emerging markets could suffer a brief correction. Nevertheless, we are convinced of their long-term growth prospects and would consider setbacks as an opportunity to buy.

Bonds: We think that monetary policies both in the US and in the euro area will remain unchanged at least until the end of the third quarter of 2010. Among government bonds, we prefer peripheral European countries, as we are of the opinion that spreads could still tighten.

Within the bond quota, Investment Grade Corporate Bonds remain our first choice, even though we are aware that future performance will not live up to past performance.

Further inquiries: Bank Austria Press Office Austria
Thore Dohse, Tel. +43 (0) 50505 - 52809
E-Mail: thore.dohse@unicreditgroup.at

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