ABN AMRO MeesPierson: “Stocks out of favour for now”

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Private Banking cuts equity portfolio in favour of cash

ABN AMRO MeesPierson suggests that investors reduce their equity portfolios and build their cash positions instead. ABN AMRO’s private banking arm reckons recent investor bullishness is unsustainable and has therefore lowered its weighting of equities to underweight, from neutral. What’s more, ABN AMRO MeesPierson expects a second steep decline in equity prices or an extended period of sideways trading in a broad range, as lockdowns across the world look set to last longer than previously thought. The bank still takes an upbeat view of the longer term and continues to predict a rebound later in the year.

Ralph Wessels, Head of Investment Strategy at ABN AMRO MeesPierson, said: “The economic impact of the lockdowns is growing clearer by the day. Every extra week of lockdown detracts from economic growth, causes more unemployment and lowers production. We see more downside potential for equities right now than upside. Also, we are pegging our earnings outlook below the current market consensus. In fact, share prices are back to where they were before the coronavirus crisis and are not particularly attractive. And we see Trump back to throwing mud at China. Lastly, we note that the summer is typically more subdued for equities – the so-called Sell-in-May effect. So we suggest reducing stock portfolios and opting for cash instead.” 

Rebound expected

Still, ABN AMRO MeesPierson isn’t predicting mere doom and gloom, and continues to expect a rebound in the third quarter of the year. The recommendation to reduce stock holdings is a shorter-term move to be better prepared for what’s ahead and to take advantage of market opportunities later. The bank continues to favour US stocks over European and emerging markets. It also likes the information technology and healthcare sectors, which have proved quite resilient in the current crisis. Both sectors dominate US markets.

Consumer staples hold up

ABN AMRO MeesPierson has become more positive on consumer staples (moving from underweight to neutral), as it feels the sector has held up well during the coronavirus crisis and its products are still widely bought by consumers. In general, these companies have strong cash positions and attractive dividends. By contrast, it has become more negative on financials (moving from neutral to underweight), as a deteriorating economy stands to hit banking majors hard. They will be facing rising loan losses, while interest rates look set to stay low for longer. Utilities remain underweight and ABN AMRO MeesPierson is keeping to its neutral stance on all other sectors.

Unchanged bond strategy

ABN AMRO MeesPierson has made no changes to its bond strategy. Government bonds remain underweight, it favours euro bonds issued by investment grade companies and has a slight preference (modestly overweight) for emerging markets bonds. The result is an overall neutral view of fixed income.

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