MARKET VIEW 15
MACRO OPIN ON
Sébastien Galy , Senior Macro Strategist at Nordea Asset Management:
The last leg of a tremendous rally Timing the end of an equity rally is a difficult exercise. While we expect the current rally to extend well into next year, now is the time to start preparing for its temporary end.
“Diversification is the art of avoiding large losses by avoiding large gains,” Stefan Gasic, Chief Private Banker at Nordea, jests. Yet, there is some truth to his comment. Quantitative easing has led to a “buy everything” mentality that has begun favouring long duration assets such as growth companies. The latest wave is the emergence of crypto currencies owing to the fear that governments will simply inflate away large debt loads as happened in the 1980s. Understanding the life cycle of a narrative is crucial – it has a beginning, a middle and an end. While growth style investments will eventually head towards a temporary underperformance, we believe the trend towards environmental, social and governance (ESG) investing is most likely at its beginning. Financial markets typically overshoot; central banks prepare and clean up. We assume that this time round, given the extreme degree of liquidity pushing investors into riskier assets and encouraging higher leverage, equity markets should overshoot more than most expect. As some investment styles de-anchor ever more from reality, the current rally is likely to reach its inflection point sometime in the second half of next year as expectations of a global econo- mic slowdown in 2023/2024 intensify. What is the solution? In a world in which diversification is harder to achieve, there are still ways investors can prepare for the next phase. The first is to feel confident about what you hold, e.g. ESG positions that make economic sense. The second is adding flexible solutions that can rapidly adapt to changing market conditions giving your portfolio more immunity. Finally, consider covered bonds, which are among the ultra-safe non-govern- ment assets.
Close to the top: every cycle reaches its peak at some point. For the current equity rally, this could be in the second half of next year. Investors should prepare for the inevitable downhill ride.
World trade is symptomatic of a strong cyclical rebound slowing down Development of the volume of world trade in %
25 20 15 10 5 0 -5
World, Foreign Trade, CPB World Trade Monitor, Total, Volume, SA, Index -10 -15 -20 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Source: Nordea Investment Funds S.A. and Macrobond Date: 31.10.2021
ISSUE 01.2019 2. 21
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