Michael Strobaek: "Healthy correction is good for the market"
How to prepare for more volatile markets?
In early February, investors faced a sharp market correction and a spike in volatility, triggered by fears of inflation. Many investors were left wondering how to best position themselves going forward. Michael Strobaek provides some valuable advice.
Good Times, Bad Times
If January was exceptional for the continued rally in equity markets, early February is likely to be remembered as the time when excessive comfort and ultra-low volatility came to an abrupt end. Equities and other risk assets switched to risk-off mode after a strong US jobs report further fueled inflation concerns, and fears of a more hawkish Federal Reserve triggered a meaningful rise in government bond yields.
Yet, as our analysis shows, what we are looking at is a healthy correction. It is worth keeping in mind that the global economy remains in a very strong state and that a gradual normalization of monetary policy and cyclical inflation pressures are a natural result of strong growth.
In fact, we believe that the setbacks have opened up buying opportunities for investors given that the cyclical and structural backdrop remains sound. This is why we have retained our overall asset class views, particularly our optimistic stance on equities. We used the correction to raise our holdings in emerging market equities and in financials, which benefit from higher interest rates.
Unsustainably high volatility also creates opportunities of its own. The Eurozone recovery may well lift the EUR/USD further.