ABN AMRO MeesPierson less positive on equity

Press release -

ABN AMRO MeesPierson is trimming its allocation to equity from modestly overweight to neutral. The private bank has become less positive toward equity in light of the anticipated slowdown of both global economic growth and corporate earnings growth amid various geopolitical uncertainties. That said, ABN AMRO MeesPierson is not counting on a recession in 2019.

Ralph Wessels, Head Investment Strategy at ABN AMRO MeesPierson, explains: “Corporate earnings could well turn out lower than analysts expect. While we do not foresee a recession, there is definitely a degree of pressure on the economy. The global economy is likely to lose steam in 2019, and this will also curb the uptrend in corporate earnings. Furthermore, we are dealing with continued political uncertainty surrounding the Brexit, and there is tension between the political parties in the US. Due to these two factors, slowing growth and political uncertainty, we believe it would be wise for us to assume a more cautious stance toward equity, and as such, we recommend that investors trim down their equity positions somewhat. Within our equity portfolio we significantly favour emerging market equity, we are mildly positive on the US market, and we are now becoming cautious toward Europe.”

Uncertainties remain

For the financial markets, this has been one of the worst Decembers in history. The main detracting factors were the uncertain growth expectations, the trade war between the United States and China, and uncertainty among investors as to what the US Fed was planning to do with interest rates. Since the end of the holiday season, the equity markets have rebounded by 8 to 10 per cent. Wessels: “However, these uncertainties remain, and could very well cause renewed market declines in the next few months. Moreover, investors have yet to get used to the prospect of lower corporate earnings. All in all, the risk/return ratio of a position in equity, whether neutral or overweight, has become less attractive – a sentiment reflected in our quantitative models.”

More cautious approach

Over the next few months, ABN AMRO MeesPierson expects to receive more detailed information on the impact of lower growth on corporate earnings. Wessels: “The earnings season will soon be here, and we're interested in seeing what we can learn from the earnings guidance companies are going to provide for 2019. For now, we believe it is wise to assume a more cautious investment approach regarding equity. That aside, our policy remains unchanged: we will continue to be cautious toward bonds, and positive on commodities.”

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