When measured in euros, this year September doesn’t
appear to have lived up to its reputation as a difficult month
on the markets. Apart from Europe, all the regions earned
positive returns, albeit small ones. Yet those positive
returns were the result of positive currency effects: the US
dollar and Japanese yen both appreciated versus the euro.
In local currency, equity returns were negative in all regions,
which matches the picture of equities often having a tough
time of it in September. Equities had to contend with rising
bond yields and volatile oil prices. Bonds were of course also
adversely affected by the higher yields, with government
bonds falling slightly more in price than credits due to their
higher sensitivity to interest rates. Real estate, also
sensitive to interest rates, was the worst affected asset
class.
We’ve retained our equity overweight. We believe
economic growth will be high enough to have a positive
impact on equities, even if central banks raise their policy
interest rates slightly. The robust earnings growth is
especially positive for equities.
Within bonds, we’ve closed our underweight in investment
grade credits listed in euros as spreads versus government
bonds have widened slightly. We hold an underweight in
Eurozone government bonds. While we don’t expect bond
yields to climb much higher, we prefer equities.
Highlights this month:
- Geopolitical risk premium in oil price is justified
- Little upward potential for bond yields
- Underweight switched from credits to government bond