Battening down the hatches

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As 2018 draws to a close, there are many reasons for investors to tread carefully. Even though the US Federal Reserve chairman Jerome Powell made an unexpectedly dovish speech at the end of the month, potential stumbling blocks for financial markets abound. These include global trade tensions, Brexit, and Italy-inspired political upheaval in the euro zone. At the same time, the outlook for the global economy has darkened a shade, liquidity conditions continue to deteriorate and technical indicators are flashing red for many of the major asset classes. There are, of course, attractive investment opportunities still to be found, particularly after recent market turbulence. But, on balance, we think that the mix of uncertainty about the future and the tough conditions in the present merit a reduction in our exposure to riskier asset classes. We have therefore decided to reduce our equity stance to neutral and upgrade bonds to neutral.