Reduced exposure overall

Estratégia de afetação de ativos - 11-09-2018

Market performances this summer were more mixed than usual, but nevertheless still buoyed by the continued rise of the leading market, i.e. the US market. (English version)

The results of US companies were particularly good (even if the upward trend of the market remained highly concentrated on just a few stocks, such as Apple and Amazon, which gained close to 20% and 14%, respectively, in August). This is probably partly the reason why the more complicated environment, resulting from the rise in political risks and fluctuations in emerging currencies, was ignored. With the end of the earnings season, markets will probably turn their attention back to the current concerns: 

-the ups and downs of the US protectionist risk are currently as fluctuating as they are unpredictable. As we write, the US is getting ready to apply 25% tariffs to Chinese imported goods currently worth USD200 billion

-the slowdown in the Chinese economy continues, and the government is trying to contain it through a progressive series of more-or-less significant measures. There are currently two factors behind the slowdown in China, namely the result of former measures to curb the momentum of credit, and the impact of the deterioration in trade relations with the US. We do not anticipate a break in the Chinese economy, and remain convinced of the ability of authorities to maintain growth at a good level. But we cannot complete rule out market concerns regarding this point. 

World liquidity is slowing, the main reason being the reduction in the Fed’s balance sheet, which partially explains the high volatility of emerging currencies, and, more anecdotally, of crypto-currencies. The crises in Argentina and Turkey that are affecting their assets, the causes of which are purely local, nevertheless cannot be considered merely separate additional events: these two very different countries share a common characteristic, which is their large current account deficits, and thus represent the intrinsic weakness of emerging countries. In a context of monetary tightening in the US and with the dollar gaining strength, the emerging countries with the greatest imbalances are in the front line. Given that the US monetary tightening appears solidly anchored over the next few months, the question of an eruption of an “emerging crisis” arises. Following the announcement by the Federal Reserve in 2013 of the change in its monetary policy stance (the “taper tantrum” of 2013), many emerging countries began a rebalancing process, to the point of reaching a fairly healthy situation, especially at this stage in the cycle. We can therefore rule out additional volatility (due, for example, to sell-offs on the emerging asset class following a sharp drop in a context in which the environment will remain under pressure), but not the possibility of a classic crisis in emerging markets, with the urgent requirement to repair significant macroeconomic imbalances. 

-The political factor. Brexit negotiations, which will be at the core of the European Summit to be held on 18 October, and which for the time being are highly uncertain, could inject further uncertainty on to the market, while the Brexit deadline is drawing near. Likewise, the upcoming Italian budget, the US parliamentary elections and the Brazilian presidential election are also events that tend to create uncertainty. 

Key points
  • Equity exposure neutralised
  • Slightly underweight emerging markets

This long list of risks could lead one to believe that it would be better to keep away from the markets over the coming weeks. Far from it in our opinion. Firstly, the risks are already well identified and partly priced in. Secondly, the fundamental environment remains solid, with some macroeconomic indicators even pointing in favour of an upcoming acceleration in developed countries following signs of a slowdown. Conversely, we have tactically made cutbacks in terms of our risk budget. We have thus neutralised our equity exposures and even slightly underweighted emerging equities.

    Our convictions for September Changes compared to the previous month
Emerging countries
Investment Grade
High Yield
Money market
Convertibles bonds
Next headline events
  • September 18 & 13: next ECB meeting
  • September 18 & 19: next BoJ meeting
  • September 25 & 26: next Fed meeting

Elément complémentaire