It is likely that the most recent correction to the equity markets will in turn be corrected. Credit risks are being further reduced for bonds….
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Swisscanto Investment Update July 2013
Investors are increasingly beginning to adjust to allow for a phase of rising interest rates over the next few years. The rate at which the interest rate adjustments will take place is very important here. If this happens slowly, this would be the best option for the markets. By contrast, a sudden, sharp rise would have negative consequences for the bond markets and also put an end to the upward trend in the equity markets. Set against this background, good economic news is currently ‘bad news’ for the financial markets, because the more the economic situation improves, the more likely rises in interest rates become. In our view, the economic data in the USA will however still be bad enough to keep the markets content.
European equities very favourable again
The recent sharp falls in share prices mean that equities are valued extremely favourably once again by continental European companies. This evaluation currently offers a risk buffer against falling profits, rising interest rates or higher corporation tax. By contrast, US equities now no longer have such ‘valuation protection’. While we have weighted Swiss equities neutrally, we are rather more sceptical about Asian equities. The sectors favoured by us include capital goods, software and hardware as well as automotive and components. We are more cautious in the areas of consumer goods, healthcare, property and utilities.
More caution towards high-yield bonds
We are reducing our exposure to high-yield bonds somewhat. This is in line with the course that we adopted a while back for all corporate bonds in order to further reduce the risks. We are maintaining our position in Italian government bonds; Spanish bonds remain strongly underweighted. We are basically of the opinion that it is currently more advantageous to take risks with equities than with bonds.
Source: ETFWorld – Swisscanto
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