We now have a slightly negative outlook on equities. In mid-March, we decided to realize another portion of stock gains, primarily because i) major global stock indices are currently moving at new historical highs, ii) stock valuations are also at historical highs or at the highest levels since technological bubbles in 2000, and iii) due to our concerns about sharply rising inflation due to still unprecedented monetary and fiscal stimulus in key major economies, in particular the US, the euro area and Japan. At the same time, according to historical statistics, it has always been the case that with higher inflation, equities did not perform very well. We therefore believe that expectations of a very positive future development have already been priced into the current stocks prices and the scope for further significant stock gains is already significantly limited.
The key risk to our slightly pessimistic scenario for global equity markets is the fact that key central banks – Fed, ECB, BoJ – are still purchasing assets on an unprecedented scale (quantitative easing). From a global perspective, central banks printed $ 9.2 trillion last year, three times the previous record from crisis in 2008. So we cannot rule out that global equity markets will continue to grow from current historical highs, as the correlation between global stock indices and the global money supply has indeed been very strong since the global financial crisis.
Investment Strategist at Conseq Investment Management, a.s.