Danske Bank’s neutral weight for stocks

The darkest clouds over the markets have disappeared due to the increase in neutral weight for stocks. However, Kivipelto advises stock investors to be cautious about geographical diversification.

We are overweight on emerging markets. We continue to have neutral weight on US and Japanese stocks. In some places, the markets have fallen to overoptimism in Europe, according to Kaisa Kivipelto, Danske Bank's senior strategist.

The stock markets have risen as the worst energy crisis threats have faded away. It is predicted that Europe will not go through a recession. Kivipelto notes that the energy crisis that affects the entire corporate sector has not yet been overcome.

The economic development in Europe has been better than feared due to a mild winter and low energy prices. Europe is not expected to experience strong economic growth, and there is a risk of an increase in energy prices. The US consumer, however, has been supported by the strong labor market and savings accumulated during the epidemic, although the high level of interest rates could have been expected to restrict economic growth, Kivipelto says.

Danske Bank maintains its weight in bond investments. The bank favors higher-quality investment grade corporate bonds, eurozone government bonds, and short-term money market investments.

There is a risk that risk premiums will increase in these riskier interest rate categories because growth slows down from their current, very low levels, which is why there are attractive interest rates available for emerging market loans and high-yield corporate bonds. If risk premiums go up, it will lead to a decline in value, says Kivipelto.

Money market investments and eurozone government bonds with short maturities are overweight due to their relatively low risk profile and moderate return potential. It can be said that especially money market investments have made a thundering comeback to the investor's toolkit, according to Kivipelto.

Inflation is one factor that determines the development of stock markets. It can lead to a weaker or stronger development than expected.

The central banks are curbing high inflation rates with interest rate hikes. The inflation has remained high despite the rate hikes. It's a concern that interest rate hikes slow down economic growth, which has a direct impact on corporate earnings.

Economic development will weaken if inflation doesn't improve and central banks raise interest rates. Interest rate hikes are not needed in case whereininflation can decrease faster than expected. "We are at a turning point," says Kivipelto.