Investment View Q1 2015
We are positive on equities due to three game changers, being the low oil price, Mr. Draghi’s QE programme, and the weak Euro.
We anticipate European equities to outperform U.S. equities driven by lower valuations and higher dividend yields, the stronger USD which should hit Q4 2014 profits of global U.S. companies and the generally low equity exposure to Europe.
QE has also caused a positive momentum for Europe. The best STOXX 600 sectors will likely be the ones profiting from low oil prices and the low Euro. European mid-caps should also perform better than in 2014. The best European stock market should be the German DAX. German companies profit the most from the Euro weakness.
We find Chinese and Japanese equities directional bets on the positive outcome of economic measures. We would avoid the risks.
We remain positive on investing in longer dated high grade U.S. Corporates.
We would not invest in Bunds; their real yields are negative.
We are negative on US High Yield and EM bonds. We remain positive on European High Yield.
We expect the appreciation of the US Dollar to make a standstill in Q1 2015. The appreciation went probably too fast and a counter reaction may be expected.
We would convert US Dollar cash into Euro’s and start hedging US Dollar over-exposures in Euro denominated portfolios.
The weakness of the Euro forced the Swiss Central Bank to abandon the EUR/CHF peg of 1.20 after three years. We expect the Swiss Franc rally to slow-down in Q1 2015 and to revert/stabilise to/at around 1.10 to the Euro in Q2 2015.
The lower oil price knocked down the value of the Norwegian Krone (NOK). At current levels the NOK seems a good diversifier against Euro weakness. The NOK should appreciate if and when oil prices rebound.