Global CIO video: Patience rewarded
Perseverance pays off. While December's rout in equities was disheartening, we kept our overweight view on equities and profited from the rally in January.
What a difference a month makes. After a dismal December, bond and equity markets rallied in January. That recovery has extended into February, validating our House View, but risks still loom.
Despite progress, the US-China trade conflict has not yet been resolved, there are political tensions in several Eurozone countries, and there is still no light at the end of the Brexit tunnel. Moreover, the equity rally was driven by a significant shift in expectations related to the US Federal Reserve's interest rate policy rather than improving earnings prospects. All these factors and the current industrial production slump prompted us to make several adjustments to our tactical positioning.
Prudent to take profits
We took part of our strong year-to-date profits in equities and neutralized our profitable global equity view, enabling us to seize new opportunities as they arise. In light of improving liquidity conditions and stabilizing growth, we continue to see potential in emerging markets (EM), which we reflect in positive views on EM equities, local and hard currency bonds, as well as currencies.
Do not stray from the SAA
At this point in time, we believe it is prudent to stay close to our Strategic Asset Allocation (SAA). We know that our SAA provides a very good mix of investment opportunities, and fares well in difficult market conditions.