GAM Investment Solutions - Seeking an earnings story
GAM Investments’ Larry Hatheway outlines his latest multi-asset views, discussing whether a pullback in markets appears less likely than it did at the turn of the year, the main threats to an improvement in markets and the potential catalyst for investors to
re-engage more fully in risk assets.
Markets have recovered from the selloff at the end of last year, and rightly so. The selloff was predicated on beliefs about weakness in the world economy that were largely exaggerated and unlikely to materialise. The recovery that we have seen in the first four months of 2019 has made up for those losses in the fourth quarter. Now matters get more interesting.
Can the same leadership sustain the equity market rally for the remainder of 2019? Probably not. Rather, rotation is necessary, with leadership from emerging markets, cyclicals and Europe replacing the US and technology. But whether that happens remains an open question. One concern remains the potential re-emergence of trade conflict between the US and China. US president Trump has threatened again to impose higher and more widespread tariffs.
The initial market reaction has been very negative, as one might anticipate. There are two reasons for that. First, a breakdown of negotiations is negative for risk premia. Second, uncertainty could put at risk the global economic expansion.
Investors had anticipated we would put those uncertainties behind us, but if they do re-emerge (in whatever form) we believe rising risk premia will lead to a contraction of equity valuations and reverberations across capital markets.
Thus far this year we have positioned for equity outperformance. We are now trimming back to a more cautious stance. We continue to favour quality and minimum volatility as styles likely to outperform. Our emphasis remains on proper portfolio construction and tactical re-balancing to minimise drawdown.
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The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. Allocations and holdings are subject to change.
Author
Larry Hatheway
Group Head of GAM Investment Solutions and Group Chief Economist, GAM Investment SolutionsMay 2019
Please note that these are the views of Larry Hatheway on behalf of GAM Investment Solutions and should not be interpreted as the views of RL360.