The EAM is reviewing its asset allocation positioning, taking a close view at recent defaults and problems in China, among other forces.
China has been an important buyer of European exports and the Asian giant’s recent economic and financial woes cast a shadow over countries making significant revenues from China.
At Geneva-baseded Apricus Finance Wealth Management, an external asset manager, the group said in an August update on its asset allocation strategy that it is considering its overweight stance on European equities in light of concerns about slowing Chinese economic growth. (See an earlier outlook from the firm here.)
Apricus, which is long [positive on] of Chinese equities said it is convinced that authorities in Beijing will have to take “decisive action” to avoid a “social meltdown.”
“Although this is taking longer than we expected, we suspect targeted measures will be implemented. China renewing higher growth would be an extra kick for the European economy and its stocks,” the firm said.
Last week, among a flurry of commentaries, Bank of Singapore said the plight of Zhongrong International Trust – which has missed a set of payments – and Country Garden, the developer, were reasons for caution rather than panic. The Singapore-based private bank said Beijing must act “decisively to avoid contagion risk.” Worries that China might have its own version of Japan’s property market slump of the late 1980s, or the US sub-prime mortgage debacle of 2008, have hit markets in China, creating ripple effects elsewhere.
In its note, Apricus said: “After the hopes of decisive action by the Politburo to revive an economy that has continued to lose steam, and recently even fallen into deflation, domestic and foreign investors alike are still waiting on the sidelines, as nothing concrete has been actioned by the government. The only real action we have seen has been lowering interest rates. However, as we pointed out in the past, this is of no use if there is no demand for credit.”
“Recent data indicate that demand for credit is now contracting for everything: from consumption to durable goods, to housing,” it continued.
Setting out its allocations, Apricus said: “We are slightly underweight equities, and neutral fixed income, with a gold position, partially USD [US dollar] and JPY [Japanese yen] hedged.
Within equities, Apricus said it has a “very sizeable underweight” stance on US stocks and a “very sizeable” overweight stance on continental Europe. It is overweight Asia, excluding Japan, neutral on Japan and the UK.
The firm is underweight sovereign debt, overweight investment-grade debt in euros and dollars. It is also long of high-yield euro-denominated debt, long of US municipal infrastructure bonds, and long financial credit and Asian bonds.
Apricus concluded with a reference to recent weather patterns and the impact on agricultural commodities.
“Briefly, after the meteorological phenomenon of La Niña ended, El Niño returned, with expected excessive rains in certain regions and drought in others. It is very likely it will put upward pressure on agricultural commodities over the next six to 12 months. The investment committee is looking to capitalise on that view, and at ways to implement that view in our portfolios,” it added.