Most of the macro bears see a host of risks to the economy, but two factors were mentioned repeatedly: weaker economic data and contracting earnings in the US, and the slowdown in China. However, the uncertainty in the global economy has led to a protracted sell-off providing chances for bargains as well, especially in Asia.
Emerging opportunities
Almost all interviewees now have a strong underweight to emerging market equities. A couple even do not have any exposure to the asset class at the moment, which is exceptional for Finnish investors. But as was the case in August 2015 when the Chinese equity market had just started its meltdown, the Finns still plan to increase their allocation.
They see the best chances in Asian equities, where 50% of interviewees plan to increase their allocation to. Interviewees mentioned India and Southeast Asia as attractive regions, while China is widely regarded as the biggest risk to a recovery in the asset class. Global emerging market equities are a little less popular, with 36% of interviewees planning to increase exposure. Some interviewees voiced concern about the impact of persistently low commodity prices on many EM countries. However, none of them intend to decrease their exposure to either GEM or Asian equities, though many say decreasing further is simply not an option because they are already deeply underweight.
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US equities back in fashion – but for the right reasons?
Even though they still lag European equities in popularity, US stocks are now at their most attractive in almost three years to the Finns. Finland is the only country where those intending to increase exposure outnumber those planning to decrease it. Paradoxically, their renewed enthusiasm has not been triggered because US equities now look cheaper thanks to the market sell-off. To the contrary, those planning to sell cite (still about 20% of interviewees) high valuations as their main reason for doing so. So why are more Finns buying now? It’s because they perceive the US as a safe haven amidst rising uncertainty globally, or the reason is simply that their allocation is already so low that it can only increase from here.
