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Lukas Daalder

Market malaise is a good time to add risk

12-10-2015 | Insight | Lukas Daalder Momentum deteriorates in Q3
Whereas the industrialized world experienced a pretty solid second quarter, there is no denying that underlying momentum deteriorated during the third quarter. The US in particular weakened more than expected, hit by a combination of the fall-out from commodity prices, the strength of the dollar and slowing growth in emerging markets. In this respect, it was pretty impressive to see Europe managing to surprise on the upside. Although this growth slowdown is certainly a negative surprise, we expect it to be a temporary phenomenon: China will reboot its economy through extra stimulus if necessary, while low energy prices will boost consumer demand.

Financial markets were far from pleased
The financial markets were far from pleased with the slowdown. And sell-offs in big names like Glencore (-30% in one day) and Volkswagen (-40% over two weeks) added to the nervousness in the market. It is remarkable to see that over a six-month timeframe, none of the major asset classes has managed to book a positive result. Looking back, this is a very rare situation, as normally a sell-off in one asset class (stocks) leads to a flight to safety which boosts others (bonds or gold, for example).

market-malaise-is-good-time-to-add-risk-graph.jpg

Figure 2 Multi-asset performance over the past six months: nothing but losers

Adding to equities and high yield
Given that we expect the growth slowdown to be temporary, we have been adding risk (equities, high yield bonds) during recent months. And we have also reduced our underweight in credits at the expense of government bonds.
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Lukas Daalder
CIO Investment Solutions


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