Globally, net equity sentiment is close to record levels, while net bond sentiment is flat or down to near record levels. A scenario explained by a virtual consensus that central banks can continue to pump liquidity into the system and this will eventually kickstart economies. Meanwhile, economists are predicting a long and deep slump.
Meanwhile, economists are predicting a long and deep slump. Recently analysts were worrying about central banks’ capacity to buy more debt, the wisdom of such high levels of state ownership of corporate debt and the lack of reaction from consump- tion. Is it really true that if bonds go down, equity must prosper?
Across all regions, net equity sentiment and net bond sentiment are close together. Net equity sentiment is rising slowly, while net bond sentiment is falling sharply.
The exception is Japanese net bond sentiment. This makes Japanese bonds a potential safe haven for surplus liquidity.
The gap between US net sentiment on equity and bonds is large and rising. However, the increased vote for stability (about 50% for equity and bonds) highlights the increasing political and economic worries underneath the surface, especially around the contentious November presidential elections.
Net EU equity and bond sentiment also shows a big gap, but the neutral bond statistics remain stable. The percentage of analysts neutral on equity is at a record level. In the UK, net bond sentiment is sharply down, with net equity sentiment only rising gradually. The neutrality on bonds is higher than in the EU, while equity neutrality is matching EU figures. If this continues, it would signal market doubts about the capacity and future role of the Bank of England.
Japan’s bond sentiment remains stable, while net equity sentiment is slowly rising. Japan may well profit from rising potential in emerging markets offsetting what is happening in the US.
Peter Kraneveld, international pensions adviser, PRIME bv
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