04 December 2012: SC – Even stronger weighting of shares as the year comes to a close liquidity

Shares are justified by valuations that continue to be attractive, as well as signs of improvement in the global economy. The second factor also favours those commodities with a high weighting in the energy sector that are strongly dependent on the development of the price of oil……

Whilst the over-indebtedness of the peripheral European states will continue to preoccupy the financial markets, another topic has attracted less attention up to now. The real estate market in the USA has stabilised and house prices are showing an upward trend once more. The significance of this trend reversal should not be underestimated as the volume of residential real estate in the USA makes it the largest asset class in the world. The negative effect that led to the subprime crisis and then to the general financial crisis of 2008/2009 can now develop in a positive direction: higher real estate prices will make mortgage charges once again more tolerable for many homeowners, which in turn should lead to higher consumer spending. This important contribution to growth in the US and global economies has not yet been acknowledged in the markets. In our view, the tug-of-war over the US budget could be less problematic than feared. A compromise between President Obama and Congress seems probable to prevent the fiscal cliff (automatic spending cuts and massive tax increases in the event that an agreement is not reached).
In contrast, negative signals are coming from Japan. Economic data indicate that the country is already in recession. In light of massive public debt, it is very possible that this critical situation will take on increasing importance in the markets.

Shares remain attractive
In a mixed portfolio, the greatest contribution to returns should still come from shares. Favourable valuations, the first signs of an end to the economic decline in the eurozone and the seasonal effect of the year-end rally make us optimistic. In addition to European securities, US shares are now also overweighted. Amongst others, our preferred sectors are food, software, banks and energy, whilst we expect below-average share price performance from utilities, insurance and telecommunications service providers. The additional equity exposure comes at the expense of bonds.

Somewhat more cautious on corporate bonds
The search for good returns has led to great demand for corporate bonds. There are technical factors such as liquidity flows, for example, that are currently driving this market. Generally, we still prefer corporate bonds to government bonds. However, we are mindful of reducing the risks within the portfolio to a certain extent.
We are strengthening our exposure to commodities. Commodity contracts with a high proportion of oil and gas are profiting from a recovery in the global economy and also offer protection from negative consequences in the event of an escalation in the Middle East crisis.