Cash

Although cash may seem like a 'residual' asset class, it is actually a key component of the capital markets. First, it represents in nominal terms the least risky asset class and forms the basis from which we measure risk premiums and assess the attractiveness of equity and fixed income. Additionally, cash reflects monetary policy and the pricing of derivatives.

We base our cash projections off of current cash rates and our expectations of monetary policy. Over the longer run we expect all central banks to move toward a sustainable rate that is consistent with the level of inflation and growth of a region. Below is our projection of nominal return for cash, realized inflation and subsequent real returns from cash for the next five years for key markets. (Note: we define cash here as 3-month Libor rates or their equivalent.)

Expected 5-yr real cash returns for selected markets in local currency

Region

Region

Nominal

Nominal

Realized Inflation

Realized Inflation

Real Cash Return

Real Cash Return

Region

United States

Nominal

2.5

Realized Inflation

2.0

Real Cash Return

0.5

Region

Eurozone

Nominal

0.4

Realized Inflation

1.7

Real Cash Return

-1.3

Region

China

Nominal

3.2

Realized Inflation

2.8

Real Cash Return

0.4

Region

United Kingdom

Nominal

1.4

Realized Inflation

2.2

Real Cash Return

-0.8

Region

Japan

Nominal

0.3

Realized Inflation

0.3

Real Cash Return

0.0

Region

Switzerland

Nominal

0.1

Realized Inflation

1.0

Real Cash Return

-0.9

Region

Korea

Nominal

2.6

Realized Inflation

2.0

Real Cash Return

0.6

Region

Taiwan

Nominal

2.2

Realized Inflation

1.9

Real Cash Return

0.3

Region

Brazil

Nominal

5.3

Realized Inflation

4.2

Real Cash Return

1.1

Region

Mexico

Nominal

5.5

Realized Inflation

3.3

Real Cash Return

2.2

Region

South Africa

Nominal

6.1

Realized Inflation

4.5

Real Cash Return

1.6

Region

Turkey

Nominal

14.0

Realized Inflation

11.5

Real Cash Return

2.5

Expected 5-yr real cash returns for selected markets

Source: UBS Asset Management. Data as of 30 June 2019.

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