Why to tactically cut equities now? - Commerzbank

According to the analysts at Commerzbank, equity markets have continued to trade higher in a surprisingly trending fashion and suggests that it’s the time to tactically cut equities to neutral now.

Key Quotes

“Has our preferred, and in recent years successful approach of tactically trading stronger market moves in a contrarian manner stopped working? We admit that rising real growth and rising inflation steepen the underlying nominal earnings trend and strengthen the trending element in equity markets. This makes outright equity underweight positions more risky than in recent years.”

“Nonetheless, we refrain from chasing the market higher but cut equities tactically to neutral on – among others – an elevated positioning of the fund industry. We allocate the proceeds to sovereign bonds and cash. After all, we intend to raise equity exposure again into better opportunities. Elsewhere among risk assets we maintain our underweight positions in energy and base metals as well as the small overweight in high yield corporate bonds and the overweight in REITs. Among safer assets we maintain our preference for investment grade corporate bonds and gold over cash and safe-haven sovereigns.”