As central banks continue to pump money into the financial system to revive sluggish economies, Rothschild Wealth Management says it will stick with its policy of holding gold as well as Asian and emerging market assets.

The firm is also less defensive in its stance towards equities, arguing that opportunities are there for the taking over the medium term, and that many institutions that are out of the stock market may be forced to buy into it.

The views were spelled out in a regular note by Dirk Wiedmann, head of investments at the firm. Referring to the US Federal Reserve and the European Central Bank, Wiedmann said the “world’s two most important central banks are now committed to stimulus programmes that are potentially unlimited in size”.

“Recent developments in Europe and the US have eased some of our fears about the outlook for markets and the global economy. We continue to focus our holdings on real assets, Asia and emerging markets, safe bonds and strong currencies as we seek to deliver real wealth preservation and growth in a world of high debts and potentially runaway inflation,” he said.

As far as the bond and cash markets are concerned, Wiedmann said he sees “little value” in government bonds, and has a very small allocation to this asset class.

“Instead, we continue to focus on investment grade corporate bonds (even after the fall in yields), emerging market debt and, where appropriate, high yield bonds,” he said.

Discussing the case for equities, Wiedmann said the firm’s cyclical valuation model suggested that global stocks are undervalued by around 10 per cent, even when Rothschild’s conservative forecasts on earnings are taken into account. He sees the greatest potential in the UK, Japan and eurozone markets.

“Without doubt, the outlook is still cloudy, the US ‘fiscal cliff’ is looming and corporate profits look unsustainably high. Yet a fair amount of bad news is already priced in to equity markets and, while the ride won’t be smooth, we do think equities will deliver good performance over the next five years,” he said.

Hedge funds

Wiedmann said unpredictable markets were positive for hedge funds and he favoured managers whose returns were not closely tied to stock market performance.

As far as property was concerned, the sector is attractive due to global opportunities but Wiedmann said that listed real estate investments will stay volatile.