In the last monthly comment, I used the starting point of the OECD area’s leading indicators to describe how the global economy had moved into a new phase of the trade cycle (expansion), as well as how this phase has historically favored high-risk active classes.
This phase usually lasts nine months but the newest and revised OECD figures indicate it already looks like the rate of increase in the leading indicators is cooling down so much that a peak can be close – and might even be reached as soon as next month.
If this happens and we enter into a new phase (deceleration), it will be atypical because the current phase has been relatively short. This will have significance for how to best allocate resources.
To a large extent, this applies to the allocation of shares and convertible bonds. If necessary, these must be scaled down from overweight to underweight. In the expansion phase, global equities normally yield 0.49% more in return than their long-term monthly returns, whereas in the deceleration phase they normally yield 0.93% less.
A phase shift can also have great significance for the allocation of long bonds. Long bonds normally suffer in the expansion phase with a monthly return of 0.46% less than the long-term monthly return (which to a greater extent is dependent on price fixing – in other words, interest rates) but in the deceleration phase they normally yield a monthly return of 0.14% more than the long-term monthly return.
Read the Monthly economic report here