One could think positively about the share price recovery after the corona crash in March, which was the fastest ever, but Tilmann Galler, capital market strategist at J.P. Morgan Asset Management (J.P. Morgan AM), points out that the gap between market development and the economy has never been as large as it is today. He therefore advises investors to strengthen the defensive in their portfolio, without, however, depriving themselves of the further potential of equity investments.
Two factors speak in favour of equity investments. Firstly, the sectors that have been particularly hard hit by the Covid 19 pandemic, such as gastronomy and tourism, are comparatively weakly represented on the stock markets and secondly, the ultra-loose monetary policy of the central banks is pushing interest rates to new lows. Bonds are becoming unattractive and investors no longer have many alternatives outside equities.
Galler now urges caution, because a new wave of viruses could put an end to the optimism. In that case, the central banks do not have much room for manoeuvre to surprise the markets positively once again. If one thinks about the development of corporate profits, investors are too optimistic. In retrospect, after the last three recessions, companies need at least three years to regain their old earnings power.
An unrealistically fast normalisation of the economy is observed on the stock markets. The past has taught us otherwise. Gallert therefore advises rebalancing the portfolio rather than exiting equities.
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