We are ready to increase our equity weighting by a further 3 percentage points at the expense of global government bonds. We are waiting for events between Russia and Georgia to unfold and clarify. So we called the bottom in global equities about a week and 4 percent (on the MSCI AC World) too early – markets wanted to worry about whether the US government would support Freddie and Fannie.
This – of course – was absolutely ridiculous and irrational given the importance of the GSEs in the current housing/mortgage turmoil and goes to show how negative sentiment really is. We stick to our main message from July – the bottom for global equities (and risky assets more broadly) in 2008 has been reached and we expect things to continue to improve from here. The key risk to this forecast is a renewed acceleration in commodity – primarily oil and food – prices.
Download the entire report (PDF: 450 kb: 6 pages)