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Market outlook is turning more positive

Partly due to the liquidity operations of the ECB, the euro stress abated somewhat. Measures to stimulate the (domestic) economy are however also necessary for the Eurozone to grow out of the crisis.

After a positive end to 2011 - global equities rose by 11.2% in the fourth quarter - 2012 got off to a strong start. The improved sentiment is partly due to a decrease in euro stress over the past few weeks. It may of course still rear its head again regularly, for instance in the wake of the downgrade to France and Austria’s credit rating from AAA to AA+ by rating agency S&P. The downgrade came as no surprise, as S&P had already issued a warning in December. S&P also downgraded the AAA rating of the EFSF, the Eurozone’s emergency bail-out fund, which fuelled speculation about the fund’s capacity.

Nevertheless, progress has been made in tackling the euro crisis over the past few weeks. The ECB’s measures to alleviate liquidity problems in the European financial system seem to be working. In December, the central bank issued almost unlimited 3-year loans to European financial institutions at a 1% interest rate. Partly thanks to this, yields on short-term Spanish and Italian government bonds dropped sharply. Peripheral Eurozone countries also held successful bond auctions. For instance, Italy and Spain sold new bonds with ease.

We continue to believe that policymakers will take the correct steps to tackle the euro crisis. These steps may be triggered by periods of rising market turbulence. As we see signs of the global economic cycle reaching the bottom, against the background of very low expectations, we are slightly more positive about the market. We have therefore increased our positions in equities and commodities. However, we remain cautious about investments with a large exposure to the Eurozone.

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