Time to turn more cautious

We believe global equity markets are about to enter a more challenging phase, and are therefore downgrading stocks to underweight from neutral. At the same time, in response to a near 50 basis point rise in US Treasury yields, we take profits from our underweight position on government bonds and move to a neutral stance. This is a purely tactical decision as we believe that government bonds in developed markets have already entered what will become a secular bear market.

Elsewhere, we stick to our long position in the US dollar: despite its trade-weighted gain of some 8 per cent since September, the currency remains fairly valued and should continue to draw support from relatively resilient US economic growth, the country’s improving deficit and persistent speculation that the Fed may scale back its bond purchases.

Almost all of our indicators suggest a more cautious positioning towards risk assets over the next one to three months is justified. Weaker leading economic indicators, higher equity valuations and excessively bullish investor sentiment raise the risk of a correction in equity prices.

Our leading indicators for the month strongly suggest that the business cycle has deteriorated in all regions excluding Japan. The loss of momentum is particularly evident in the US, where our lead indicator has fallen the most in two years in April, primarily on the back of weak investment. China is another source of concern, reflected.

Der vollständige Monatsausblick im pdf-Dokument