MarketView: There’s still some juice left
We obviously made the right decision last month in keeping the overweight in shares. Going into December we maintain our view.
The stock market has risen by about three per cent in NOK during November. It seems like we made the right decision when we decided on having an overweight in shares in this past month.
For December we choose to maintain this market view. We still have the same opinion about the markets as we had a month ago. Specifically, this means we consider both the political situation of the trade war, and Brexit, to be better than what was previously feared.
The positive outweighs the negative – for now
Growth impulses are positive on the margin, the central banks say they will continue to stimulate the markets and 3Q-earnings came in satisfactorily. The premium for taking risk in the stock market relative to the fixed income market is also high: Thus, we have a "hunt for yield" argument in favour of shares.
By using about 1/3 of the risk limit we make the overweight in our portfolio. We have a clear cyclical structure in the equity portfolio and choose to have shares in sectors such as finance, industry, materials and cyclical consumption. In the bonds part of the portfolio, we still prefer short to long-term fixed income securities while we at the same time choose to be overweight in Norwegian/Nordic High Yield.
Five underlying reasons to maintain overweight in the stock market
For reasons mentioned above, as well as the historically low interest rates levels, we stick to our outlook going into December: We will keep our overweight in the stock market.
Here are the five underlying reasons to maintain overweight in stocks this month:
1. The political unrest is reduced
Buying and selling shares based on Trumps tweets is hardly a good investment strategy, but at the same time we have to take his actions into consideration. The US-China trade war has made both sides suffer in terms of real income and financial conditions.
A year from the election, Trump knows that a strong economy perhaps is his best hope for re-election, and that’s probably why he postponed the planned toll increase in October. This is also why we expect an extended truce going forward. Even as Trump signing of the Hong Kong pro-democracy bill angers Beijing; we do not believe this will threaten the slow moving negotiations on a trade deal between the two countries.
