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06 February 2012: SC – Keeping equities slightly overweighted

GRAFICO CAMBI

As a result of the ECB’s measures, a liquidity crisis among European banks is not a topic any more. For valuation reasons, we continue to regard equities as attractive.…..

          The most recent decisions taken by the European Central Bank (ECB) and the American Fed are a major reason why we feel quite positive with regard to the development of stock markets. Nevertheless, closer examination reveals some contradictions in the ECB’s policy under its President, Mario Draghi. On the one hand, unequivocal statements signal a tough stance in order to keep countries with a «virtuous» financial policy, such as Germany or the Netherlands, happy. On the other hand, the measures adopted signify a certain softening-up of previous principles. For example, the regulations on the lodging of loans have been relaxed, enabling even moribund European banks to obtain sufficient liquidity. The Fed in turn has supported this expansive monetary policy in that it plans not to increase interest rates at all until mid-2014. Even if this has diminished the probability of a bank crisis, the fundamental problem of inadequate solvency on the part of countries on the European periphery and individual banks remains unresolved.

          Easing of tension regarding Italian and Spanish government bonds
          Despite investors’ higher risk propensity, which usually signals a possible consolidation, we feel slightly positive towards equities. Especially thanks to central banks’ very expansive monetary policy, markets should tend to rise further. Within the equity strategy, Europe, the USA and emerging markets are being overweighted, Asia and Japan underweighted. In view of the demanding economic environment, we continue to be reserved towards small caps.

          The support measures are also a reason why we have largely abandoned our scepticism towards Italian and Spanish government bonds. We regard the high yield segment as attractive, because many companies should survive a mild recession without major defaults.

          Regarding currencies, we are maintaining our small overweight in USD against the CHF. The US currency is undervalued, has a minor interest advantage and is considered a safe haven as long as the Swiss National Bank defends the lower limit of CHF 1.20 against the EUR. Our positive opinion about the Scandinavian currencies NOK, SEK and DKK remains unchanged.

          Source: ETFWorld – Swisscanto (Thomas Härter – Head of Investment Strategy)

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