Global equities opportunity uncertain – SEB

SEB said in its latest review of global equities that with the level of macroeconomic uncertainty in place, investors will need to be selective and focus on good risk management through the autumn.

“Historically, a good strategy has proven to be buying when things look darkest and selling when everyone is buying. In sheer macro terms, things do look dark. With some stock exchange indices near four-year highs, one could draw the conclusion that pessimism is probably not nearly as widespread as is often believed.”

“After a period of steady share price increases and low volatility, we are most likely facing a period of higher volatility and thus higher risk. This autumn will show whether the market gets what it wants in the form of more stimulus. Being selective and focusing on good risk management is a challenge to investors who want to take advantage of the potential nonetheless offered by global equities.”

Europe remains the biggest problem area, SEB added. By way of illustration, while the struggling peripheral economies of Greece, Ireland, Italy, Portugal and Spain only represent 5% of global GDP, they are 25% of EU GDP.

“We have known for several years now that as long as the sovereign debt problems are not resolved but instead always put off to the future, the crises will recur with growing frequency. The question persists whether Greece will remain in the currency union, and there is still a significant risk of negative contagious effects in the event of an exit. Spain is another storm cloud on the horizon, and the trend there is anything but positive. The risk of investing in European equities must still be considered high.”

In contrast, the US stands out against both Europe and China, SEB said. However, the caveat is that while the S&P 500 has been at a four year high even as US economic growth has remained low, if the world’s financial problems start to affect the US, then the value of US equity could suffer.

Help is not coming from the BRICs, SEB warned. China in particular has surprised the markets with its decelerating economy. Emerging markets may still be growing faster than developed markets, but not enough to support the global economy too, SEB added.

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