The price correction following the announcement of a less aggressive monetary policy in the USA was exaggerated. The liquidity supply remains high, which should now be rewarded again by the markets….
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Swisscanto Investment Update August 2013
The fact that the central banks will once again have to reduce the abundant supply of liquidity to the economy has always been obvious to all market participants. However, this process needs to be carried out as carefully as possible, which is also why enough liquidity will flow into the system in the next few months to keep the equity markets happy. Their reaction to the signals from the Federal Reserve as regards the change to monetary policy has therefore been far too negative in our opinion. The markets will however continue to take note of and also interpret all statements from the Fed with the greatest attention. We remain in a situation where good economic figures are no longer being positively received because the central banks could subsequently cut back on their aggressive monetary policy earlier than expected. Up to now, growth in the US economy in particular has not been so strong that the central bank has had to slow it down. In Europe, there are once again signs of a slow economic recovery.
More Japanese equities
As we expect a more positive underlying mood in the equity markets in comparison with the previous month, we are slightly increasing our equity allocation. We are implementing this through purchases of Japanese shares. Prime Minister Shinzo Abe’s election victory is allowing him to go through with his economic programme and to stimulate the economy by expanding the money supply again. For the time being, Japanese companies will benefit from this cheap money and from the weak Yen. Securities from Japan are now slightly overweighted within our equity strategy and European equities remain significantly overweighted because of their favourable valuation.
Upside of the US dollar
We remain of the opinion that at present taking risks with equities is far more worthwhile than with bonds. For this reason, we are pursuing a conservative strategy with corporate bonds. We are underweighted in commodities, as stocks of the main commodities, oil and gas, are currently high in the USA and bottlenecks are unlikely to arise. We are confident in our currency strategy for the US Dollar and are therefore buying the American currency as opposed to the Euro. At the same time, this serves as a hedge against the Euro crisis flaring up again.
Source: ETFWorld – Swisscanto
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