ABN AMRO: “Caution owing to trade dispute”

Press release -

ABN AMRO continues to take a cautious approach to markets owing to rising economic risks, maintaining its neutral position in equities. The bank attributed its approach to uncertainty regarding the trade dispute between the United States and China, as well as other growing political risks. Bonds are still out of favour (underweight). Within commodities, gold is preferred (overweight).

Richard de Groot, Global Head at ABN AMRO’s Investment Centre: “Our view regarding the global economic outlook was challenged when the trade dispute between the US and China took a step backward. While we continue to believe that recession will be averted in the US, ABN AMRO has downgraded its already muted economic growth forecasts for the eurozone, the US, emerging Asia and China. All of the key central banks have responded to the rising economic risks related to the slowdown in growth and the re-escalation of the trade conflict. ABN AMRO expects that the Fed will cut rates three times between now and the first quarter of next year and that the ECB will provide more stimulus. Against this background, we have decided to remain neutral towards equities.”

Longer duration of bond portfolio

ABN AMRO expects the pressure on long-term core bond yields to continue and is therefore lengthening the duration of the bond portfolios. The bank has taken this decision due to the weaker economic climate and because bond yields will remain lower for longer than expected. These portfolios are consequently more sensitive to interest rate movements. This is favourable when interest rates remain stable or decline, given that bond prices rise when interest rates fall. The current circumstances continue to be conducive for credit spreads on more high-risk bonds, especially if central banks step in with further support. ABN AMRO therefore prefers higher yielding bonds, investment grade corporates and emerging market debt.

Positive on gold

Within alternative investments, we continue to favour gold as a segment of the overall commodities sector. The bank is positive for various reasons. Firstly, technical factors support the case for gold prices to rally towards the end of the year. Also, an environment of easier monetary policies is typically supportive for gold prices. ABN AMRO’s precious metals expert forecasts that by year-end gold prices will rise to USD 1,400 per ounce.

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