Author: NN Investment Partners
Signs of stabilization in emerging markets have eased externalheadwinds in developed economies and underpinned the global risk appetite. With US policy uncertainty likely to decline going forward, the outlook for risky assets has brightened.
Risky asset classes recovered from their summer rout in October. New hopes for quantitative easing (QE) in Europe and a less foggy outlook for US monetary policy have reduced investor’s fears of stormy weather to come. As important as the state of the economy or the direction of policy mix, the amount of uncertainty that investors perceive around their base-case outlooks plays an important role in determining their risk appetites.
A mix of an improving economic outlook and lower uncertainties is positive for “risk-on” markets. Recent ECB statements in combinationn with the latest earnings and economic data lifted markets. Fed signals about a possible December interest rate hike weighed a bit on the outlook, but they also reduced uncertainty and therefore had no clear directional impact on risky assets, even while they impacted bond and currency markets. We do not consider a rate hike as a threat to the markets. We see it more as a sign of confidence that emerging economies’ weakness is not impacting the developed economies too much. It may also signal more confidence in the inflation outlook, and investors concerned about the lack of nominal growth may feel more at ease. As a result, we broadened our risk-on stance by turning positive on real estate, equities and credit spread products while being negative on government bonds and commodities.
