© Bloomberg. A quiet retail precinct during the introduction of lockdown measures in Amsterdam, on Dec. 21. Photographer: Peter Boer/Bloomberg
(Bloomberg) — Credit Suisse (SIX:) Group AG’s global investment committee slashed its stocks allocation to neutral from overweight on Tuesday, citing increasing risks from the quickly spreading omicron variant.
“The risk is considerable that the U.S.A. as well as large parts of Continental Europe will likely not be able to avoid stringent lockdowns over the winter months,” committee members led by Michael Strobaek wrote in a note, commenting on the 3-to-6-month horizon.
U.S. and European stocks have been retreating from record highs over the past weeks as the hawkish shift in central bank policy and Covid restrictions have weighed on appetite. Credit Suisse said that monetary officials are now more focused on fighting surging inflation and their response to economic weakness may be less forceful compared with previous waves of the pandemic.
“Even though we do not foresee a situation as drastic as at the start of the pandemic, we could face a situation in which the growth prospects are waning while central banks are forced to tighten liquidity at the same time,” the investment committee said.
At the same time, committee members said they still see upside for stocks over the next six months as robust global growth will continue over the medium term. Within equities, they prefer more cyclical markets such as Germany and Japan, while cutting the U.K. to neutral on a deteriorating earnings outlook. And they keep their underweight in government bonds.
Credit Suisse sees upside of about 11% for the MSCI AC World and MSCI U.S. indexes in the next 12 months.
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