The markets are still suffering from the uncertainty associated with developments in the European Monetary Union. The previous overweight of shares from the euro zone continues to be reduced and the risks are being returned to the bond portfolios...
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Political decisions regarding the debt situation in several southern European countries continue to be the main interest of the financial markets. The next event under the spotlight is the repeat of the parliamentary elections in Greece, which will take place this month. Since the outcome of the election is not likely to make things any clearer in terms of other European countries, an exit from the monetary union by Greece has, in our opinion, become more likely. It is still not entirely clear how the main problem of the common currency, namely the substantial differences in economic performance between the member states, could be solved.
The differences in views between Germany and other austerity-focused countries and the southern European countries that would benefit from any possible eurobonds are too great. Since the new French president, François Hollande, is also an advocate of eurobonds, it remains unclear in which direction the single currency will move.
Significant underweight in Spanish and Italian government bonds
With so much uncertainty, more caution is called for in the investment strategy. We are only weighting stocks from euro-zone countries neutrally, although they are valued very favourably. On the other hand, we are maintaining the overweight in North American stocks, since the US economic recovery is progressing despite setbacks. We rate the food and beverage, software, energy and now pharmaceuticals sectors as positive. We expect below-average performance for insurance, telecommunications, commodities, real estate and utilities. As for bonds, the rates for corporate bonds and high-yield bonds remain the same, but we are reducing the risks within the portfolio. We are maintaining our significant underweight in Spanish and Italian government bonds.
In currencies, the previous overweight in the NOK against the CHF will be reversed. As a result of lower expectations for future economic growth, we do not expect any increase in oil prices in the near future and therefore do not foresee a positive contribution to the NOK as a ‘commodity currency’.
The overweight position in the GBP against the EUR is also new. We expect that negative news regarding the monetary union is likely to weaken the EUR against the GBP.
Source: ETFWorld – Swisscanto (Thomas Härter – Head of Investment Strategy)
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