The models are broken
The market is trying to get back to the pre-Covid and pre-war times, but that model is broken. A new dawn is here and the financial world needs to adapt.
Steen Jakobsen,
Chief Investment Officer
Head of Equity Strategy
Summary: Equities worldwide are on a roll, boosted by optimism about a US-China trade settlement. But the cheer isn't universal as both German and South Korean indices are holding back – are they being prudent or just over-cautious?
The US-China trade deal will obviously alleviate some of the nervousness among companies but a lot of damage has already been done. Financial conditions have already eased somewhat but the bigger question is whether they have eased enough to offset the negative dynamics in play. The OECD’s leading indicators suggest the weakest outlook against trend growth since October 2009 with December’s data still suggesting a substantial slowdown with the current slowdown from the recent peak on par with the 2010/11 slowdown driven by the euro area crisis. As a result of this we continue to position ourselves defensively in equities.
The current phase in the business cycle suggests that investors should be:
Underweight:
Banks, insurance, semiconductors, consumer durables
Overweight:
Software & Services, Telecommunication, Retailing, Pharmaceuticals, Biotech & Life Sciences.