Keep an overweight in shares – but be careful

In more than a year chief strategist in Sparinvest David Bakkegaard have recommended an overweight in shares in his monthly reports – and this month is no exception.

However, he now points out, that it is now necessary to be particularly attentive. If his assessment a deceleration will be short-lived, but if this is incorrect, a may have a deceleration will significant impact on the returns in the various asset classes.

Long bonds in particular can go from being losers to winners. German 10-year interest rates have already risen about 70 basis points since the expansion phase began in mid-2016, where long-term investors could look forward to a return at expiry of -0.2% per annum.

As a consequence of the good European key ratios - and weaker expectations for the US economy - EURUSD has risen to its highest level for more than two years. In addition, the very large spread between German and US long-term interest rates has begun to normalise slightly.

EURUSD seems overbought at present but in terms of purchasing power the euro remains relatively cheap compared to the US dollar (see graph). It is therefore David Bakkegaard Karsbøl's assessment that in six to twelve months the euro will be even higher than its current level.

Read the full monthly comment here.