See volatility in mkts in 2010, buy gold: Credit Suisse

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Stefan Keitel, Global Chief Investment Officer at Credit Suisse expects the markets to be volatile in 2010. However, they will remain in the constructive mode despite volatility, he adds.

Expecting gold prices to gain from the current levels, he says that he is comfortable allocating 50% to risky assets in 2010.

Dollar recovery, according to Keitel, is due to strong economic data and carry trade.

Here is a verbatim transcript of the exclusive interview with Stefan Keitel on CNBC-TV18. Also watch the accompanying video.

Q: Last few days have been a bit turbulent for global markets - any risk aversion, which is beginning to claw its way back into the system you feel?

A: Yes, I think this will be the case and that is exactly our expectation for the whole year 2010. We think after that fate of rather low volatility over the last 9-10 months in 2009, we now expect the markets to be much more volatile.

Q: What exactly is feeding this risk aversion though at this point?

A: We should not forget that markets gained on average roughly of 50% over the last nine-months and this was very much driven by some normalization in economic growth after the emerging markets and also in the traditional region - the strong reacceleration and of course much liquidity on the sideline and much liquidity pumped by governments and central banks into the capital markets.

Now, of course, we are somewhere on the edge where we talk about sustainability of economic growth on the one hand and the start of a tightening cycle. This of course is able to cause some nervousness and to cause some volatility. But don't get me wrong, I think despite the volatility, for the whole year 2010, we still think that we are still in a normalization phase - a bumpy road but we are still in a constructive mode. At the end of the day it is clear that that constructive mode is not over yet. That means the capital market in general and risky assets specifically also the equities could also perform again quite well in 2010.

Q: Over the past fortnight or so we have been hearing reports of large scale ETF selling. Is that a function of redemption led pressure or is it just a tactical call being taken where people prefer to keep cash levels high?

A: There will be many investors who are also being focused on technical asset allocation. This is also quite a good strategy for the year 2010. Firstly, I am a strong believer in strategic asset allocation and it being focused on strategic trends. We are in volatile markets now since some weeks. This is a normal investors' behaviour. I would not overestimate that.

Q: What are your top-two asset class picks for the entire 2010, what would you pick from equities, commodities, other asset classes even some defensives like gold?

A: Yes as always and I want to stick to that philosophy independent from the market cycle is be focused on the broad-based asset allocation. As I just mentioned I think the time is not over to be also focused on risky assets that means minimum the half of the portfolio should consist also in the year 2010 on risky assets.

We feel quite comfortable to have still a visible portion of equities in our portfolio still the cyclical markets - the commodity linked markets. We also feel quite well to have some subsegments, some more risky subsegments from the fixed income side in the portfolio as for example selective corporates, emerging market bonds, selective high yields. Also, some commodities you have just mentioned, we think that the commodity trend is not over. They can come down over the next months of course but that is rather buying opportunity and of course the portfolio should consist roughly of a quota of gold of 5%. That story also is not over. I am a strong believer that the gold price appreciation will go further.

This has not only to do with a pendulum swinging to inflation. This has very much to do with a structural weakness in the main currency blocks. This is rather increasing by that approach diversified portfolio which focused on equities, on corporate bonds, on commodities and on gold, is the right way to go.