Global recovery scenario on track but it's not yet time to add risk to portfolios, says Franz Wenzel, head of Investment Strategy at AXA Investment Managers.
Global recovery scenario on track but it’s not yet time to add risk to portfolios, says Franz Wenzel, head of Investment Strategy at AXA Investment Managers.
Economic indicators available in March are consistent with our global recovery scenario. However, the Russian intervention in Crimea is an additional element which only adds to the uncertainty surrounding emerging markets. We maintain a neutral stance on risky assets in the short term and also confirm our positive view for the long term.
The Russian intervention in Crimea shook markets which are fearing an escalation in the Ukrainian conflict. It is neither in the interest of Russia nor of Western countries to walk this path, but the much-feared geopolitical systemic risk is raising its head once again. Even if a military confrontation between the US and Russia is not on the cards, civil war in Ukraine cannot be ruled out.
From a strict economic standpoint, sanctions against Russia could drive up commodity prices and therefore weaken the nascent recovery in Europe, while the US would prove more resilient.
Real economic indicators available in early March are consistent with our global recovery scenario. The US economy was hit hard by weather conditions in the first quarter and is likely to rebound briskly in the second. The recovery in Europe, although uneven, is on track. And emerging markets, although hit by financial turmoil, are still growing, albeit at a slower pace than in 2013.
Against this backdrop, we are maintaining our cautious view on equities in the short term and keeping a neutral view on bonds, after the recent risk-off rally, which has made them even more expensive. We are also sticking to our cautious stance on emerging markets, fearing that capital outflows have not yet run their full course. An unexpected geopolitical escalation in Ukraine would change this benign view.