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Lengthy bull market may “grind higher”

While some investors are stepping up their concern around an impending recession, wealth manager Kleinwort Hambros advises it is likely the bull market will continue to “grind higher”.

While some investors are stepping up their concern around an impending recession, wealth manager Kleinwort Hambros advises it is likely the bull market will continue to “grind higher”.

Mouhammed Choukeir, chief investment officer at Societe Generale's UK private banking and wealth management division, said clients are coming to terms with the uncertainties posed by Brexit and Trump.

“These are topics that have been around for some time,” Choukeir said.

“But without a doubt, a question that keeps coming back time and time again in the last few months is, ‘Can this bull market continue to rally and what should I be doing right now considering we're seeing such a strong bull market?’.”

According to analysis by Kleinwort Hambros, the top of bull markets have historically been characterised by over-valuation, an economic slowdown, and a sense of “optimism, even euphoria”.

The latter two, Choukeir said, are certainly not present, and only specific segments of equity markets can be considered significantly expensive.

“It's a bit of a broken record over the last few years that the US equity market is over-valued… But if you look at global equities then actually, there are pockets of opportunity.

“European equities are not as elevated [and] emerging market equities, even though they've had a strong rally, are up about 30% this year.”

Of the 262 family offices which took part in Campden Wealth’s Global Family Office Report 2017, 44% said they planned to increase their developing-market equity allocations over the next year, while only 8% planned to decrease. Meanwhile, 21% planned to invest more in developed-market equities, and 18% planned to decrease these allocations.

Developed-market equities made up on average 20% of 2017 portfolios, according to the GFOR, while developing-market equities accounted for 7%.

Today’s bull market is about nine years old, compared to the average period of expansion which lasts about five years. Stock prices are up 250% from the 2009 trough, compared with an average bull market peak of about 200%.

However,  Choukeir said the “anatomy” of the market was the more important consideration.

“[There] are other bull markets that last longer, the most notable being the one in 1990s that lasted 12 to13 years, [and] the returns were much higher—about 500%,” he said.

“So even though it's stretched in some markets, there are instances where the bull market could continue to grind higher.”

Choukeir acknowledged the bull market had likely reached the “latter stage”.

“But by our assessment it doesn't feel like this is the time to reduce risk aggressively… We have been adjusting our risk stance in light of the elevated valuations but not extremely so,” he said.

In the GFOR 2017, 32% of respondents said they were pursuing a growth-orientated strategy, 47% balanced, and 21% preservation. Just under a third said they wanted to divest away from the safe haven of developed market bonds this year.


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