Market Monitor
02/2017

Last week we saw some corrections. Equity prices came back from their partly historic highs and High Yield Bonds as well as Corporate Bonds showed also setbacks. The High Yield Corporate Bond Sector suffered 2,8 bn USD withdrawals in the week of March 8th. It looks like a sell-off. Meanwhile 7 bn USD were invested into US equities. Since US elections in November more than 87 bn USD have been directed to US stock funds. Interestingly the 12 months’ outlook is more constructive than the 3 months’ outlook.

Expectation of faster economic growth, lower taxes and a lighter regulatory regime are supporting US equity markets. Europe is following this trend.

We see some uncertainty in health care. If the negotiations do not end in positive results, it could be negative for the market.

Investing in uncertain times is our current challenge. Corrections in High Yield Sector quite often correlated to moves in stock markets. US crude oil prices have fallen more than 10 % from their February peak. Investors shifted to emerging market debt positions over the past week with investments of more than 2,1 bn USD of fresh capital.

European economic figures look quite positive. Inflation with 1,8 % is close to ECB’s planned corridor. A more detailed view shows diverging inflation rates over Europe, with Belgium on top with +3,1% YoY January 2016 to 2017, while Bulgaria, Romania and Ireland are at the end of the chart with 0,2% to 0,4% and clearly below the average. Eastern European countries show GDP growth rates of +3,1% up to 4,8% YoY for example when you look at the figures of Poland, Bulgaria and Romania while Greece’s economy is still shrinking with -1,1%.

Our recommendation is to dance at the party, but to stay close to the exit. Our equity strategy in the MinMax Global Equity Fund as well as the income oriented strategy in the Strategic Income Fund have hedge strategies implemented. Security first! We would like to participate in the uptrend and at the same time avoid big draw downs.

This hedging strategy reduces the performance slightly. At the same time, it protects if a big draw down happens.