Defensive stance

Defensive stance

about 5 years ago1 min

After a tricky 2018, stocks have started the new year with reasonable gains – particularly among riskier investments, such as shares in small European companies. But here comes Saxo Capital Markets to poop the party.

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Saxo reckons “the picture looks gloomy” when you combine this week’s data showing a nasty drop in German industrial production with recent weakness in Chinese stocks – especially shares of car and smartphone producers.

While US Federal Reserve policy makers have made supportive noises for markets and America and China may be making progress in unblocking their trade dispute, Saxo says “the market is getting a little bit too optimistic here.” 😟

Saxo is advising investors to batten down the hatches – to trim the amount of stocks they own and shift to shares in more defensive companies (those whose profits are more sheltered from prevailing economic winds).

“We maintain our defensive view on equities,” it says. “That means no more than 25%-30% weight to them in an asset allocation portfolio. Defensive sectors (consumer staples, healthcare, telecom) should be preferred.”

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Saxo closes with a warning from history:

“We could obviously be wrong and China may successfully manage to stage a rebound in the economy on top of striking a deal with the US. In this scenario, and given that the Fed keeps its monetary policy looser than expected just one month ago, equities could obviously rally further. But remember, even during downturns, brief moments of relief rallies do happen. From late March 2008 to mid-May 2008 the global equity market rallied 10.6% on the rescue of Bear Stearns. The rest is history.”

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