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The brand-new pinball style

The brand-new pinball style

23-10-2019 | Quarterly outlook
The past few weeks have been filled with news of US-China trade talks and Brexit. While we don’t have much more certainty than before on either issue, we do have a better understanding of how far some of the parties involved are willing to go to reach a resolution. For all of his tough talking about a no-deal Brexit, Boris Johnson has worked hard to resolve the issue of the Irish border and put a new deal on the table. Meanwhile, President Trump appears keener than ever to show that he has “made the deal” with China.
  • Fabiana Fedeli
    Fabiana
    Fedeli
    Global Head of Fundamental Equities
  • Wim-Hein  Pals
    Wim-Hein
    Pals
    Head of Emerging Markets team
  • Michiel  Plakman
    Michiel
    Plakman
    Portfolio Manager Robeco Global Stars Equities

In the current news whirlwind, a new style seems to have emerged: pinball investing. Markets have been bouncing off tweets in whichever direction makes more sense at the time. The trade deal is on, equity markets go up and risk-on trades outperform; the trade deal is off, equity markets go down and turn more defensive. The probability of such binary outcomes is incorporated in our investment team’s five-factor outlook, which is now neutral for both developed and emerging equity markets.

Yet, while the news outcome might be 50/50, the risk-reward is asymmetric. While further degeneration in either the trade war or – limited to the UK and Europe – Brexit is likely to cause a negative price reaction, the upside that would be triggered by positive news at this point looks far greater.

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