Highlights

  • We have progressively reduced our portfolios' equity exposure back to neutral
  • We are waiting for catalysts for an equity market rebound

The markets have started the new year on the wrong footing, as both China and the outcome of the Spanish elections cause uncertainty, while oil prices continue to decline. Therefore, we have progressively reduced the equity exposure in our portfolios since the beginning of the year to neutral.

For us, however, this correction is not the prelude of a bear market or the start of a new recession. This bull market correction should offer opportunities in the near future. Although we have become more cautious, we are waiting for catalysts (oil price stabilization/supporting ECB communication/good earnings season in Europa) for a rebound.

Thus, although we have maintained a positive mid-term view, we have adapted our portfolio to the current market environment:

  • On January 5th, we sold our direct exposure to Chinese equities.
  • On January 7th, we took profit on our overweight in Japanese equities, bringing our exposure back to neutral.
  • On January 14th, we sold our 1% exposure to US equities.
  • Yesterday, on January 18th, we sold 1% exposure to euro zone equities.

As a result of these tactical adjustments, we now have a neutral stance in equities versus bonds, a decision that is based on:

  • Technical analysis: the outlook has become negative, especially with regard to the US markets. We are waiting on this side also for a more constructive signal.
  • Fundamental analysis, where we see a decoupling between the US and the euro zone:
  • United States:
    - weakness in fourth-quarter GDP and negative earnings publications.
    + non-manufacturing remains on track and employment reports are strong.
  • Euro zone:
    + good macroeconomic data, earnings should be better than in the US.
  • Oil prices haven't, so far, stabilised.

The Weekly Strategic Insight Editorial team