Monday, April 30th, 2012

Global Equity Models Commentary 30/04/2012

(This commentary was written originally specifically for the Sterling Global Equity Model)

Market conditions

How many investors know that US equities are currently less volatile in sterling terms than they are in US dollar terms? For the time being, gains in the US equity market are partially offset by a falling dollar, and falling US equities (synonymous with a global retreat from risk) tend to balanced out by rising safe haven flows into the dollar. UK equities are more volatile than US equities in sterling terms even though they are quoted in their domestic currency. This is despite the fact that UK equities are less volatile than US equities when both are quoted in their own currency(as is normally the case).

Current portfolio

US equities remain the preferred asset class with UK equities in second place. This is a change from last week, when emerging market equities were runners up. As with the US multi-asset model, the poor returns over the last two months (eight consecutive weekly declines) have caused the model to cut its exposure. The most difficult relationship remains that between the UK and Eurozone equity markets, where there are numerous cross-currents such as, poor economic fundamentals in both regions, the prospect of substantial monetary intervention in either or both, and a trendless exchange rate. This is unlikely to improve dramatically even after the French elections.


We close April with a small loss for the month, which is disappointing, coming after a loss in March as well. The immediate outlook remains uncertain, and is complicated by the recent (unexpected) strength of sterling. UK equities must be affected by whatever happens in the Eurozone as result of the French elections, but it is impossible to predict what those effects will be or how long they will last. Much better therefore, to concentrate on what we can know, which is that the outlook for US equities, our preferred asset class, is likely to remain positive in coming weeks.

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