In order to keep you informed on the developments in the financial markets, ING Private Banking offers you a monthly
publication written by Chief Investment Officer, Thierry Masset, in collaboration with his team.
If you have any further questions, please do not hesitate to contact your Private Banker or your portfolio manager.
Dear investor,
Markets likely need to consolidate further before resuming their upward
trend.
We are sticking with our prediction that worldwide growth will pick up this
year. But what has changed is a greater chance that the path won't be
so smooth. In order to reflect this concern we reduced our positioning in
equities to neutral.
We expect equities to keep outperforming credit as corporates increasingly
engage in equity friendly and credit unfriendly activity.
Peripheral debt still offer good yield pick-up versus German sovereign
bonds in the Euro-Area.
Dollar-denominated bonds sold by Emerging issuers are outperforming
local currency offerings by the most since at least 2000.
Read more
Thierry Masset, Chief Investment Officer ING Belgium
Headwinds increased for
equities
Risk-averse investors content
with low yields... for now
Best rally for agricultural prices
since 2010
A corporate bond market too
complacent
WTI crude is poised for
benchmark comeback?
The appeal of higher dividend
yield
We reduced our "risk-on" stance, taking on greater protection as the prospect
of geopolitical instability grows, as global macro surprises have fallen to 10month lows, as China remains the biggest global macro concern, as global
liquidity conditions have become less supportive and as equities are expensive
on a number of absolute valuation metrics. While U.S. & Europe's recovery
remains in play, markets likely need to consolidate further before resuming
their upward trend. Nevertheless, we still believe the equity bull market is far
from over.
A growing complacency among investors is worrisome from our viewpoint. The S&P
500 has gone over 500 days since correcting roughly 8% in 2012 and during that time
has delivered an impressive 40% return (in USD) to its most recent closing record
high. Thus, the likelihood of some sort of surprise pullback is lurking, in our view. But
that does not change our investment view in the medium term. Economic growth
continues to slowly progress and earnings growth will eventually provide the support
that higher stock prices require. Therefore, while we would not be surprised if the
market gives back some of its gains, we will remain proactive in order to use periods
of weakness as an opportunity to add exposure to stocks.
Read More
Investors are dismissing concerns that
a pullback in Fed stimulus will send
yields higher and erode gains in the
corporate bond market. Demand
helped propel global investment grade
securities to a 3.6% return year-todate, the best start to a year in a
decade. But bond buyers are leaving
themselves more vulnerable to a
potential surge in yields as the extra
yield investors demand to own
corporates instead of government debt
has shrunk from 2.33% in 2011 to
0.7%.
Read More
While there is no more "great rotation" from bonds to equities this year (global
equity & bond flows are comparable since the beginning of the year while last
year equity flows outperformed bond flows), we still expect peripheral
government bond spreads versus Germany to grind even tighter. Periphery
resilience amid Emerging Markets tensions and Ukraine crisis suggests
investors are looking for reasons to buy rather than to sell. In the same time,
we have a stronger preference for putting money in hard currency bonds rather
than in local currency in the Emerging Markets.
It is possible that low real interest rates may be so baked into investors' psyches that
they may now be accustomed to accepting such low returns on their safe assets. The
question is whether this state of affairs can be sustained for the next three years and
whether sovereign bonds will continue to perform (their return is 2.15% year-to-date
in the U.S. and 4.8% in the Euro-Area)? A lot will depend on the U.S. inflation
outlook. U.S. inflation has been extremely well behaved: the Federal Reserve's
preferred gauge of inflation has now fallen short of its 2% target for 22 straight
months. Based on futures trading, investors anticipate a 64% chance the Fed will start
increasing its benchmark rate, which has been close to zero for six years, in
September 2015. In this atmosphere, you need a cushion against higher rates and US
sovereign bonds don't offer much of a cushion. Equities and higher-yielding bonds
(peripheral government bond in the Euro-Area and Emerging Markets bonds in hard
currencies) look better than most lower-yielding fixed income as the U.S. and EuroArea recovery seems to be on its way.
Read More
The West Texas Intermediate (WTI)
crude has seen its discount to Brent,
used to price more than half the
world's oil, decrease to about $7 a
barrel, from as much as $23 in
February 2013.The change
underscores how WTI is reconnecting
to global trading as improved pipeline
networks boost the flow of WTI to
refineries on the Gulf Coast where the
oil can be processed.
Read More
Brazil's worst drought in decades and cold and dry winter in the U.S. are
threatening crops. Elsewhere in the commodities market (neutral), concerns
about a China slowdown and a weaker Yuan, as well oversupply of mined metal
and the taper of the U.S. Federal Reserve's bond buyback program have cast a
bearish pall over industrial metals (underweight).
The dividend yield compared with what
investors can get on the government
and corporate bond market is still
attractive and should continue to boost
European equities, especially those
delivering sustained high yield and
increasing payouts. They outperform
the DJ Stoxx 600 by 7% since end
2011.
Agricultural prices have been rewarded this year with the best rally since 2010.
Money managers are now holding the biggest bullish wager in three years (more than
1 million contracts, according to the U.S. Commodity Futures Trading Commission)
on farm goods from cotton (+8% year-to-date, in euro) to soybeans (+11%) or wheat
(+14%) and corn (+19%) and on soft commodities (+90% for coffee and +9% for
cocoa). As more bets were added over the last months, the Standard & Poor's
Agricultural index jumped 15%, five times the gain across commodities. The rally is
snapping the longest contraction in prices in 14 years, a slump caused by rising
supplies and potentially huge inventories. Brazil's worst drought in decades is
threatening coffee, sugar and citrus crops as U.S. farmers contended with dry and
freezing weather. The two represent about a sixth of global trade in farm goods.
Escalating tension in Eastern Europe has also threatened to disrupt grains shipments.
Read More
Read More
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