Our view on equities and the economy for the rest of the year
NEW INVESTOR BRIEF: All eyes on the US in Q4 - we cap risk in our portfolios. The US will grab much of the attention in Q4 with two major events - the presidential election and a long-awaited rate hike.
“Hillary Clinton winning would mean continuity, while a win for Donald Trump would stoke global uncertainty. We expect a Trump win could prompt a negative reaction in equity markets, whereas a Clinton win would likely be moderately positive for US equities. However, overall we have no significant expectations for global equity markets in Q4 2016 – either positive or negative,” says Danske Invest’s chief analyst Jan Holst Hansen in a new Investor Brief from Danske Invest.
An election and a rate hike
Jan Holst Hansen sees a significant probability that the US central bank, the Fed, will finally raise interest rates in Q4. A rate hike is generally not positive for risk assets like equities but he does not expect this one to have any great impact on the markets, as the Fed would presumably be careful to signal that future rate hikes should unfold at a very modest pace.
“Overall, we expect US equities to remain flat in the final months of the year,” he says.
European growth to slow
In Europe, our chief analyst expects the accommodative monetary policy stance to continue, though the European Central Bank, the ECB, will not cut rates further in Q4. More likely, says Jan Holst Hansen, is that the ECB adjusts it QE programme, which could have a slightly positive effect on the European equity market and on European risk appetite in general.
“However, we also expect European growth to slow, so all in all we do not anticipate seeing any particularly positive developments in the European equity market,” says Jan Holst Hansen.
Emerging market tailwinds fading
Emerging market equities have had a fantastic year so far, in part because the countries have managed to stabilise their currencies. When emerging market currencies strengthen, companies’ earnings are boosted, and this has been a welcome positive effect after many years of headwinds. However, the FX tailwind is a one-off effect and our chief analyst expects it to fade. He is therefore looking for stability in Q4 rather than a further period of significantly firming currencies and equities.
Significance for current investments
“All in all, this means we have a neutral weighting on global equities, as we see little opportunity for marked increases in global equity markets. Hence, the share of equities in our pooled investment solutions are at their expected long-term levels. We have a cautious stance on risk and are wary about investing in higher risk assets like equities and corporate bonds, whereas we were more positive earlier in the year and had an overweight of US equities,” explains Jan Holst Hansen.
READ THE NEW INVESTOR BRIEF on Danske Invest’s expectations for the economy and the financial markets in Q4 here.
