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Equities still the ‘asset of choice’ for Lombard Odier

The firm suggests to build exposure slowly to the asset class as it expects the global economy to recover during the second half.
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While the global equity markets continue to be volatile amid the coronavirus outbreak, Lombard Odier believes that investors should continue to be invested in the asset class, according to Samy Chaar, the firm’s chief economist.

“While we have increased the [cash levels in client portfolios], we are still exposed to equities,” he said during a webinar organised by the firm.

“In our view, considering the current valuations of the asset class, this would be the asset class of choice.”

Chaar explained that the firm’s base case scenario is that the global economy will recover during the second half, if the coronavirus outbreak is contained by June.

“If we manage to contain the spread of the virus, it will be an environment of slow but decent growth in the next five years.

“In that kind of environment, large companies will be able to generate at least 5% profit growth per year, which is not as great as when they were doing 15% previously. But with 5% profit growth plus a 2% dividend, that means a buying opportunity for equities.”

Chaar said that the firm will eventually increase its clients’ equity holdings when things start to improve. However, he does not suggest to time the market, but instead slowly allocate more to the asset class.

“When things recover, we want to eventually increase our equity holdings. As we get confirmation that the daily data is improving, such as when economies are starting to open, you can slowly add more to equities.”

The global equity market has slowly recovered so far this year, with the MSCI ACWI performing -16% year-to-date after it bottomed to -31% in March, according to data from FE Fundinfo.

Source: FE Fundinfo. In US dollars.

However, he does not rule out a scenario where the global economy will continue to deteriorate during the whole year if the coronavirus is not contained.

“If there was an uncontrolled wave of new cases globally that will derail the economy again, that would be shifting to the worst case scenario. In that context, there is only one thing that would protect us, which is liquidity.

“We are not in that situation, although we remain vigilant.”

In terms of sectors, the firm prefers consumer, healthcare and IT, which are also favoured by other wealth managers, including Raffles Family Office and St James’s Place.

Separately, he noted that the firm has also been using alternatives given that the market has become more volatile this year.

“To limit volatility for the rest of the portfolio, we make use of alternatives, such as gold, real estate and infrastructure. Long-short hedge fund strategies are also helping us at the moment.”

Part of the Mark Allen Group.