"Without doubt the most dramatic development of the last few weeks is that global growth expectations have been downgraded further. There is a worry across developed markets that governments won't be able to fund themselves in future and can't cope with the current levels of debt, so we're closely monitoring bond spreads at the moment. Should spreads between France and Germany, in particular, move beyond 100 basis points, I would look to reduce risk across the portfolios that we run within the Multi Asset Group."
"So, while we're not calling the "end of the Eurozone", we certainly believe the road to recovery will be a bumpy one. One positive point is that at least global finance ministers finally admit that there is a problem - and they are taking steps to solve it. But the choreography of the solution will be incredibly difficult."
Sheikh continued: "As a result, risk levels across our portfolios are very low at the moment and we are hedged as much as possible because we believe that the situation could get worse, over the short term, before it gets better. Having said that, I do not believe things are as bad as they were in 2008 as there is ample liquidity this time around, even though access to cross-border finance is considerably harder to come by. Banks in Europe are desperately trying to get hold of dollars - and are willing to pay a higher price for them - but there is a massive shortage. This lack of lending may lead us into the next stage of the crisis but it is worth remembering that the crisis is not just Euro-specific, it is a global one."
Sheikh concluded: "Overall I'm concerned that emerging markets are starting to lead equity markets on a further downward spiral, so we're taking a cautious approach to equities at the moment in a bid to minimise volatility across our multi-asset portfolios. Our equity exposure is almost half that of the previous 12 months - and we are only buying our favourite names such as those in the US Blue Chip sector. European banks have certainly been at the ‘eye of the storm' and have seen large falls over the last few months, but we hold virtually none of these stocks in the JPM Cautious Total Return fund as we believe risk remains high in the sector. Caution is the word - though we are starting to see value, we are mindful about continued volatility and continued political risk."
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