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30 | Market research
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production capacity will be the dominant uncertainty about the fall-out of the problems at Internaxx Top ten buys and sells
phenomenon in the coming quarters and that the big automobile manufacturers. These forces –International Investors Activity
inflation is more of a longer-term threat. In the lead us to believe that an underweight is the best summary from Internaxx
coming months, we do not expect significant position for the moment.
changes to monetary policy. We expect the ECB The 2008 Top Ten buys and sells are measured
to cut the refi rate by another 25 bps to 1% and On government bonds as the total number of trades carried out in
move to quantitative easing. The Federal We expect yields to stay low in the coming each stock by Internaxx clients over the
Reserve will likely continue with its months. Some have argued that a bubble has previous year. This report is not a
conventional and unconventional stimulus developed in government bonds, but we think recommendation to buy or sell these stocks.
programmes. that low growth, falling inflation and low
official interest rates explain the current level of
Asset Allocation (source: Fortis yields quite well. We expect growth to recover
Top 10 April 2009
Investments) only slowly and we see deflation as a bigger
Top 10 Buy Top 10 Sell
Our asset allocation team believes that despite threat than inflation for now. A final argument
the improvement in leading economic in favour of low yields is central bank support. 1 Citigroup Citigroup
indicators, the economic situation remains Researchers at the Federal Reserve think that
2 Bank of America Bank of America
weak. In this environment, this is their view on buying USD 300 billion of Treasuries would cut
3 Barclays Barclays
asset classes. yields by 25 bps. We think the Fed would be
willing to buy even more if it thought that
4 Arcelor Mittal Arcelor Mittal
On equities rising yields would cripple an economic
5 General Electric Fortis
Looking ahead, we are not convinced that recovery. 6 Fortis Axa
equities will rise much further. Markets are
7 BNP Paribas General Electric
overbought, which is usually a signal of an On investment-grade bonds
8 Dexia Thomson
imminent turn. Furthermore, the recent rally It is our view that the yield on investment-
clearly has speculative elements; cheap stocks grade bonds provides ample return for the risk
9 Lloyds Banking BNP Paribas
were outperforming more expensive ones and of defaults or downgrades. Furthermore, when
10 Royal Bank of
shares of companies with low debt risk spreads normalise, investment-grade bonds
Scotland Dexia
underperformed stocks of companies with high should outperform government bonds. We are
debt. more reluctant on high-yield bonds. Many of
Though the US government stimulus is about these issuers are highly leveraged and DISCLAIMER
to kick in, we expect the economic recovery to refinancing debt is still hard for them. This document has been prepared solely for
be slow and painful. Markets will likely have to informational purposes and does not constitute
cope with increased regulation, deleveraging, On commodities an offer to buy or sell, or a solicitation of an offer
higher taxes at some point and a deflationary In early April, we moved to an overweight in to buy or sell any security or financial
environment. Company earnings have so far commodities. In the short term, we expect instrument, or any investment advice. Prospective
surprised on the upside, but mostly because commodities to benefit from increased global investors should conduct such investigations as
expectations were so low. The trend in earnings liquidity. Furthermore, as commodity prices deemed necessary and should seek their own
is still weak. In the short term, markets have to tend to be inversely related to the dollar, we legal, accounting and tax advice to determine
cope with the government enforced stress tests expect the asset class to benefit from a independently of the suitability and consequences
that financials had to go through and weakening dollar. of an investment.
May 2009 Investment International www.investmentinternational.com
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