Abu Dhabi’s Falcon warns of US recession amid dollar strength

DUBAI: Falcon Private Bank, the wealth manager owned by an Abu Dhabi sovereign wealth fund, is warning that the US could be heading for a recession as a strong dollar, the presidential elections and Britain’s potential exit from the European Union shake investor confidence.

After seven and a half years of good profit margins, “global champions within the US are struggling to grow earnings outside the country” as the currency’s strength dampens international interest, David Pinkerton, the Zurich-based chief investment officer for Falcon, said in an interview yesterday at Bloomberg’s Dubai offices.

US elections could also mark a change in consumer sentiment after the Barack Obama administration, he said.

While minutes from the US Federal Reserve’s April meeting indicated policy makers considered a rate hike likely next month if the economy continued to improve, investors see plenty of obstacles. The US economy barely expanded in the first quarter, increasing at an annual rate of 0.5%. While the unemployment rate has dropped below 5%, inflation remains below the Fed’s 2% goal.

“The Fed clearly is thinking that we’re not in risk of recession because they want to raise rates, but we think they’re looking backward,” said Pinkerton, a former manager of AIG’s private equity portfolio. “Markets on the other hand are forward looking and are quite concerned about the possibility.”

Global issues such as the “China hard-landing scenario and Brexit issue” are also giving investors “quite a bit of anxiety” which is being reflected in equity volatility, Pinkerton said. A referendum in Britain on June 23 will decide whether the country remains a member of the European Union, while growth momentum in China is fading following a credit-fueled rebound earlier this year.

“The best-case scenario is that markets continue to trade sideways,” he said. “The worst case is that we see the Fed hike or Brexit issues lead to global anxieties, taking markets down more than 5%.”

Falcon Private Bank is based in Zurich and owned by Abu Dhabi’s Aabar Investment PJS. – Bloomberg