A recent survey commissioned by UBS from central bank reserve managers has revealed that nearly half of the respondents see a US debt restructuring as a plausible scenario. The survey unveils a range of anxieties held by these globally influential monetary policy officials.
Furthermore, two-thirds of those surveyed expressed concern about the independence of the Federal Reserve, and almost half were uneasy about the quality of US economic data and a perceived weakening of the rule of law. Notably, some officials within the US administration have publicly criticized the Fed's policies, potentially fueling these concerns.
While geopolitical concerns remain, the trade policies enacted by the US administration are significantly impacting central bank confidence. A substantial 74% of respondents indicated this as a key risk, suggesting a broader worry about the impact of protectionist policies on the global economy.
Pessimism about the global economic outlook has increased markedly. While last year a soft landing for the world economy was widely predicted, this year an equal number of respondents now foresee 'stagflation' as the most likely outcome, underscoring the need for diversification.
In line with this cautious outlook, reserve managers are heavily favoring investment in gold. A significant 67% of respondents expect gold to be the best-performing asset class through the end of this decade, a substantial increase from 21% in 2024. None of the participants planned to reduce their gold exposure in the next 12 months, and just over a third reported increasing their holdings in the past year. This move towards gold signifies a search for stability in times of economic and geopolitical uncertainty.
Besides gold, emerging markets and corporate bonds, particularly green bonds, also performed well in the survey. These findings reflect a growing interest in sustainable investments and the opportunities offered by developing economies.
The survey also speculated on the end of the 'Magnificent Seven' tech stock dominance, with 57% of reserve managers believing these companies will perform in line with the global market in the future. This suggests more tempered expectations for their future growth.
Despite growing interest in cryptocurrencies, central banks remain cautious. Only one participant stated that their central bank was considering investing in Bitcoin. However, 13% of respondents believe Bitcoin will be the best-performing asset in the next five years, suggesting a potential recognition of its long-term potential.
Important Note: This analysis provides insights into investment trends among central banks based on a UBS survey. It should not be considered investment advice. Investors should conduct their own research and seek professional advice before making any investment decisions.
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