According to Rowan Dartington’s technical investment director, the primary explanation for their sanguine performance is the broad view within markets that they are “the least worst choice out of a poor hand where the negatives are hardest to define clearly”.
And, while such a view is understandable given the ongoing rout currently being seen in bond markets, the poor performance of many absolute return funds and the recent issues within commercial property, Stephens points to a number of looming equity headwinds, that could upset the applecart in the months ahead.
Number one on the list is Trump. If he is successful in bringing to bear his protectionist policies, says Stephens, they are likely to lower world growth.
“Trump has promised the redundant workers of Cleveland and Detroit that he will get their jobs back from China. His government appointees so far are reputational nationalists - it is looking like he will be taking on China big time and that is bad news for world growth and we all know how paranoid investors are about Chinese growth slowing,” he said.
On top of that, he added, emerging markets have suffered at the hands of dollar strength and in anticipation of Trump's tariffs while Europe is about to embark on its own populist revolution.
Currency too has played a role in the outperformance that has buoyed spirits, Stephens said, adding that, while dollar earners have continued to be strong as the currency has strengthened, “this is no reflection of their underlying fundamentals”
In such a scenario, he concludes, the only solution is to spread one’s assets far and wide, in an attempt to “dilute the pain and participate in the gain, from wherever it may come”.