Investors: tightrope walkers on the wire of the market

Investors: tightrope walkers on the wire of the market

Last week the main American indices registered an upward movement and Nasdaq continued to break new records, supported by hope of recovery, linked to the new stimulus measures of Central Banks and surprisingly positive macro data, which made the CESI Index of economic surprises jump to historical highs.

In particular, sales of new houses in the United States increased by + 16.6%, beyond analysts' expectations in May, and retail sales reached a growth of 17.7% month-on-month, from -14,7% in April, and against the expected 8.5%.

Additionally, U.S. politicians presented a nearly $ 1,000 billion infrastructure plan to restart the economy after the pandemic, advancing the industry and to Pharus Sicav Best Regulated Companies.

In Europe, conversely, the Eurozone composite PMI index rose to 47.5 points in June, from 31.9 in May, the highest value of the last 4 months; although still below the 50-point threshold. The services index rose to 47.3 while the manufacturing index rose from 39.4 to 43 points.

These data gave oxygen to the Old Continent’s stock lists.

It is however advisable not to forget to invest prudently, as there are still risks that need to be taken in consideraion.

First of all, the increase in coronavirus infections, which could stop the restarting of economic activity and, indeed, lead to a new partial lockdown. During the past weeks, several US States reported an increase in the number of infections, particularly in the western and southern regions. In China a new outbreak has been registered, with 256 new cases between June 11th and 23rd, as has been in Germany, in a slaughterhouse, which forced to a new lockdown in the Guetersloh district.

The second unknown is whether the current recovery will be able to bring the global economy back to pre-Covid growth levels, or whether decline in economic activities will continue. Possible triggers are bankruptcies, long-term unemployment and negative changes in consumer behavior.

The third risk is not being able to control the distortions, caused by extraordinary measures of expansive fiscal and monetary policies.

Last week Fed announced its corporate bond purchase program on the secondary market, which will continue "as long as it is necessary". This situation leads the High Yield bonds to rise indiscriminately like stocks, since the correlation between the two asset classes has been on the maximum values of the last 20 years, both half of the index composed of BB rating (which favors the Pharus Sicav Target) and the other half of medium-low quality.

It therefore makes sense to invest more cautiously into the portfolio of the riskier bond asset class.

This rare correlation also justifies the lateral trend of the Pharus Sicav Best Regulated Companies fund, which can be defined as "the new bond". Due to its bond-proxy peculiarity, it moves more like a bond than an equity, delaying the rise, compared to the global equity index due to the high quality of the securities that characterize the portfolio, more similar to less risky bonds. Thanks to the mean reverting phenomenon, in the long run (around 6 months have been estimated) the fund will even outperform  the market, once again. Therefore, there is currently an advantageous purchase opportunity.

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