Share Tool

Sell in May and Go Away? 

 

 

5/20/2014 

The uneven economic recovery and weak earnings growth are just a few of the headwinds pushing against equities this year, says Global CIO Andreas Utermann, but central bank support is keeping the outlook for risk assets strong.
Since the start of 2014, fixed-income securities have outperformed equities marginally. Will this trend continue for the rest of 2014, and will equity investors follow a “sell in May and go away” strategy?

Not unexpectedly, risk assets have faced a number of headwinds since the beginning of the year:

Proper, top-line-driven earnings growth has been hard to find.
The addition of this year’s lower earnings to last year’s stronger-than expected equity-market performance has resulted in somewhat stretched valuations, particularly in developed markets.
Ongoing uncertainty about the monetary policy of the US Federal Reserve had a continued negative impact on emerging markets.
An uneven economic recovery and slower overall growth has persisted, particularly in many emerging-market economies.
Significant geopolitical tensions arose from the belligerent actions of Russia vis-à-vis the Ukraine.

Notwithstanding all these headwinds, our assessment continues to be that the global macroeconomic picture is on a gradual improving path and poses no significant threat to prospects for risk assets. These will continue to be supported by very loose monetary policy not only in Europe and Japan, but also in the United States, where we do not expect significant monetary policy action in 2014. Central banks will continue to be willingly somewhat “behind the curve”.

Year to date, there have been four notable developments in financial markets:


1
A significant but not unusual style reversal away from momentum stocks.
2
A rally at the long end of the bond markets.

3
A reversal of the underperformance of emerging-market bonds and currencies.
4
A determined push by the BOC¹ to arrest the rise of the RMB², resulting in a negative fallout for RMB high-yield bonds.

What does this all mean in concrete terms for investment strategies? We believe that equities will outperform fixed-income securities over the course of 2014, but we continue to expect that equity markets will potentially rise between 5 and 10 per cent. More importantly, the significant rotations across and within assets classes should be a constant feature for the remainder of 2014. As a result, while we don’t expect a “sell in May and go away” attitude to prevail, investors will have to be mindful not to follow the natural inclination to participate in pro-cyclical market moves. That could prove to be very expensive.


The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.

 
¹ Bank of China
² Chinese renminbi

A Word About Risk: Investing involves risk and you can lose money. Equities have tended to be volatile and, unlike bonds, do not offer a fixed rate of return. Dividend-paying stocks are not guaranteed to continue to pay dividends. High-yield or “junk” bonds have lower credit ratings and involve a greater risk to principal. Foreign markets may be more volatile, less liquid, less transparent and subject to less oversight, and values may fluctuate with currency exchange rates; these risks may be greater in emerging markets. US government bonds and Treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and fixed principal value. Bond prices will normally decline as interest rates rise.Foreign markets may be more volatile, less liquid, less transparent and subject to less oversight, and values may fluctuate with currency exchange rates; these risks may be greater in emerging markets. Dividend-paying stocks are not guaranteed to continue to pay dividends. Investments in smaller companies may be more volatile and less liquid than investments in larger companies.

Search

> Advanced Search

Find a Product

Or Select

Or Browse by

Contact Us

For all inquiries please contact us

Follow Us

       

Related Documents

TypeTitle
Allianz Global Investors Insights May 2014 
Investor
Market Insights 
AGI-2014-05-13-9727 

Share

Facebook
LinkedIn
Twitter

You are currently leaving us.allianzgi.com and navigating to a third-party website. Allianz Global Investors Distributors LLC accepts no responsibility for content on third-party sites or for the services provided. When using the services provided by a third-party site, you are subject to that site’s terms of service and privacy rules, which you should review carefully.