International equities: Approach with caution

Managers are taking a more cautious approach to global equities as valuations remain stubbornly high.

Monday, July 31st 2017, 6:00AM

by Susan Edmunds

AMP revealed in its latest update that it was moving to a neutral stance after strong returns for the year-to-date.

It recorded a 9.9% return in USD in the year to July 14 in global equities.

But head of investment strategy Greg Fleming said it was time to pull back from being overweight.

“While we are not of the view that the eight-year equity bull market is over, we believe that near-term risks to continued strength have risen.”

He said the gains seen in the first half of the year meant it was a good time to take risk off the table.

There was significant political risk in the US, he said, as the Trump administration did not advance its reform agenda as signalled and there were concerns about the debt ceiling.

“Everything is priced for the most ideal situation,” he said. “Corporate earnings continue to be strong. The fundamentals are still there but we don’t see an immediate catalyst for more gains and we want to reduce risks until we get September’s risks out of the way.”

Paul Brownsey, of global equities specialist Pathfinder, said the US market was priced to “pretty good news.If we don’t see the tax reform and regulatory reform as signalled by Donald Trump there could be some downside. We’d need to see pretty good earnings to support equity prices at these levels. There’s certainly a bit more risk around.”

He said there were still opportunities, particularly in Europe and Southeast Asia, which were both still good value, he said.

Pathfinder was still holding portfolio protection, he said, and looking to buy more. “We’re certainly cautious rather than negative.”

Fleming said it would be a mistake to sell equities and buy bonds and property because they were more susceptible to correction risks and more overvalued.

“It’s not a time to go to cash but look at the overall risk your equity portfolio is exposed to and trim it back.”

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