Investment Strategy - Equities: move to neutral

News item -

Wednesday, in an extra meeting, ABN AMRO has discussed the current turbulence on financial markets. Due to developments around the spread of the coronavirus and a sell-off in oil, financial markets continued to fall across the board, with a volatility level that was not seen since 2008.

Equities have made a sharp drop, as well as core government bond yields. Due to these market developments, the slight overweight position in equities has drifted lower and now matches a neutral position.

During the meeting, we decided not to return to the overweight equity position, or in other words, to rebalance the portfolio. Instead, we have chosen to maintain the current neutral position. We believe that with the current high level of uncertainty, and as result the high level of volatility, this is not the moment to make any changes to the portfolio.

Coronavirus and oil dispute

The outbreak of the coronavirus is felt in the economy worldwide, but according to our research, it may even have a stronger effect on global economic growth than previously anticipated. The coronavirus continues to spread and while it seems to have reached a peak in China, in other countries this is not yet the case. Especially worries about containment in the US are rising. The announced stimulus plans of governments and central banks are supportive, but for now, are insufficient to change sentiment.

On top of this, the oil price plunged after a fall-out between the OPEC and Russia this weekend. This resulted in another round of a broad market sell-off, especially hurting oil-related companies and the financials sector. In terms of scenarios, we still believe that a prolonged shock is the most likely scenario, but the possibility of a more severe shock has increased.

How to move forward?

We continue to monitor markets closely and are looking for more clarity regarding implications for the global economy. For as long as the coronavirus is not contained, markets are expected to stay nervous.

Richard de Groot
Global Head of Investment Centre