F&C’s Paul Niven outlines his over- and under-weight positions
Paul Niven, head of Multi-Asset Investment at F&C Investments has outlined the markets in which he is over- and under-weight.
Holding US equities at neutral
Last month we adjusted our balanced portfolio positioning to moderate our enthusiasm for risk assets, which we have maintained this month. Regardless of the impact of tapering of QE in the US we see signs of faltering corporate momentum, which may be reversed but, combined with an erosion in value in equities, causes us some near-term concern. We are therefore holding US equities at neutral.
A more positive view of the Japanese and UK equity markets
The correction of the former appears to have abated and there has been some supportive data including improving consumption, strong new machinery orders, an increase in bank lending and a rise in confidence. Perhaps more encouraging for the Japanese economy is the increase in June of consumer prices, the first for more than a year, and an indication that Prime Minister Abe’s reflationary policies could be beginning to yield results.
Purchasing Managers’ Index (PMI) numbers for the UK, which are widely followed as an indicator of a country’s economic health, saw significant increases in recent weeks and have triggered higher GDP growth forecasts.
The risks around the eurozone remain large enough for us to keep our underweight
With a big improvement in Spanish exports and inventories in Europe pointing to an improvement in PMI numbers, we foresee some recovery for the region in the latter half of this year, but this will be weak. Although consensus estimates for European economic growth are no longer declining, car sales in the region have been disappointing, particularly in Germany.
Neutral weight for emerging market equities, recognising the discounted valuations but concern over growth
Fears over the uncertainty of QE tapering may have abated for now, but the recent ‘risk off’ sentiment has impacted most on emerging market equities. Lower commodity prices have hurt producer countries and growth estimates continue to fall and we believe there is significant downside risk in the event there is an exodus of capital from the region.
Cautious approach of overweight cash, neutral equities and underweight fixed income until there is more visibility on the economic horizon
With the Fed potentially changing course, fixed income markets remain nervous. Government bond yields have corrected sharply upwards and there has already been some rotation out of emerging market debt and high yield in favour of ‘less risky’ equities and investment grade credit.