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Equity markets worldwide have lost just over 3% since their peak at the end of April. Damien Petit, Head of Private Banking Investments at Banque de Luxembourg, analyses the situation and explains the management decisions that have been taken recently.
Slight correction on the equity markets
This – slight – correction is due to fears of an escalation in the US-China trade war. No agreement has yet been reached between the two countries, which has prompted the Trump administration to announce a hike in customs tariffs from 10% to 25% on $200 billion worth of Chinese goods. China retorted swiftly with the announcement of retaliatory measures raising customs tariffs to 25% on $60 billion worth of US goods from June.
Fears of the damaging consequences of this conflict on the global economy have led specifically to:
- A further decline in top-quality sovereign bond yields;
- A downturn in risk assets.
The slight fall in risk assets is hardly surprising given the markets’ sharp rebound over the last four months, largely attributable to investor complacency over the trade war. Investors are convinced that the American central bank will provide implicit support in the event of a bout of economic weakness. Expectations of an interest rate hike have also completely evaporated.
Cautious positioning for discretionary portfolios
The equity markets’ strong rally over the last four months – coupled with a strong increase in share valuations – encouraged us to reduce the equity exposure of our discretionary portfolios on three occasions during this period. The most recent reduction was in mid-May.
We intend to maintain a cautious positioning in terms of asset allocation, hence we are slightly underweighted in the equity portfolio where we no longer find valuations are sufficiently attractive. Separately, while it is likely that an agreement will ultimately be reached between China and the United States, President Trump will want to maintain a favourable economic environment in the run-up to the 2020 elections. However, we cannot rule out the negative impacts of this conflict on an ever-fragile global economy. In the event of a surge in volatility, the portfolio's cash could be rapidly redeployed.
Ten golden rules for wealth management
Wealth management calls for personalised solutions, adapted to each individual’s life plans. But we should never lose sight of intangible investment principles like the fact of adopting a long-term approach and staying invested. In this article, we review the ten key principles for successful long-term wealth management.
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