Market Outlook November

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This autumn we have expressed that we are cautiously optimistic. We are now recommending an overweight in equities. The reason for the change is primarily a more favourable development on a political level.

There is currently a greater will among US and Chinese authorities to de-escalate the trade conflict and reach a trade agreement. The Brexit circus continues and while it is difficult to predict the next move, the likelihood of the UK leaving the EU without a deal (a hard Brexit) has decreased. Meanwhile central banks have become even more active, with several recent rate cuts. Price inflation is not an issue, thus the central banks are able to carry out such political measures. The world economy is still twofold. Consumers are keeping up consumption and confidence indicators are favourable. The industry leaders within manufacturing are far more negative but we believe the atmosphere in this sector of the economy will be improved by low interest rates and by the trade conflict not escalating. Around 50% of companies have now reported their results for this year’s third quarter. There are variations between countries and sectors, but the main impression is satisfactory.


In this market outlook we are moving to an overweight position in equities. The reasoning behind the change is:

i) We believe the geo political risk has reached its peak this time around. The new developments related to the trade conflict between the US and China are difficult to predict and there has been a lot of back and forth this year. Nevertheless we believe there is a willingness to reach a trade agreement. It’s in the economic approval rating polls that president Trump is getting the highest reading (or the least bad). We believe he needs and wants a trade deal to increase his chances of winning the election one year from now. Recent developments suggest this. Tariffs, that according to a previous plan were meant to increase on 1 October, have not been raised.

ii) The political risk associated with Brexit has also decreased and the chance of a hard Brexit has been reduced. Prime Minister Boris Johnson has managed something that his predecessor Theresa May failed to do – namely to secure a majority in Parliament for a Brexit deal with the EU. His plan to leave the EU by 31st of October, however, fell through. The various committees of Parliament need more time to process the deal. We also see that the British pound has strengthened recently, in line with the reduced likelihood of a hard Brexit. German interest rates have also gone up during the same period.

iii) This autumn the central banks, headed by the American and European central bank, have implemented new quantitative easing measures to stimulate economic activity. For now, at least, price inflation is not an issue and the central banks can maintain such political measures for a long time.

iv)More people are pointing to weak confidence indicators among industry leaders and slowing growth in the global economy as an argument for being cautious. We agree with that. However, we also have to look at what could alter this scenario. Are there things happening now that could change the situation? That is of course difficult to answer, but to the extent that Brexit and the trade war have affected industry leaders, we may hope that things can also take a turn for the better and that conditions will not deteriorate any further.

v) Companies are in the middle of reporting their results for this year’s third quarter. At the time of writing, approximately half of the companies have reported their results. The overall impression is satisfactory and this has contributed to positive returns in the equity market this month.

When it comes to equity sectors, we are not making any changes. We are maintaining an overweight position in cyclical sectors.

Fixed income

We are not making any changes to our fixed-income outlook. We maintain our positive stance towards investment grade and high yield bonds. Although high-yield bonds have had satisfactory returns this year, investment grade bonds have done even better. In the near future we believe this relationship will change.