The EAM in Geneva sets out its investment views on how to play the markets when some of the signals, and investment expectations, appear to diverge in a "binary" way.
A “binary” scenario for investors – with some predicting a “soft landing” as banks curb inflation, and others predict a sharp recession – means that positioning portfolios is a delicate judgement call. With that in mind, Geneva-based Apricus Finance is remaining neutral on equities.
“After reducing the equity drift in August back to neutral, and considering the rapidly evolving situation, we decided to stay neutral in our equity allocation,” the external asset management firm said in a note. (See a previous note from the firm here.)
“Those who think that they will achieve a soft landing/shallow recession, expect the markets to rebound later in the year, those who think that a recession is unavoidable see markets much lower,” it said.
The different outlooks are reflected in the forecasts of various investment banks, which range from 3000 to 4900 for the S&P 500, Apricus said.
The EAM said the worst in inflation, at least for the US, might be behind, while in Europe much depends on the political response to the energy crisis. The European Central Bank doesn’t appear to be “behind the curve” anymore. (An exception to this is the Bank of England.)
“In fact, the ECB has adopted the same stance as the Swiss SNB, tying currency weakness to imported inflation: this has provided at least a temporary floor to the euro weakness. As such, going forward, we believe that the focus of financial markets will move from inflation to economic growth,” it said.
Among other details, Apricus said inflation expectations from both the consumer and financial markets have been dropping, and it noted that markets are now implying inflation below 2.5 per cent one year out.
Apricus also notes that tensions over Taiwan “appear to have at least momentarily subsided,” while several European cyclical sectors are already priced for a recession.”