Friday, February 5, 2010

What Works in Equity Markets Geopolitical Risk and Sector/Country Allocation

Geopolitical Risk and Sector/Country Allocation

•Sector vs. Country — For the past decade, European investors have had no real
need to worry about country risk. It’s been more important to get the regional
sector allocation right. But, recent developments in Europe have seen geopolitical
risks rise and with this a rise in the relative importance of country allocation.
• A Bit of Both — Our analysis suggests that within Europe, active calls could be
profitable across country and industry dimensions. Capital market integration has
not eliminated investment opportunities across countries while economic/
business integration does not seem to have influenced the potential profitability of
sectoral calls.
•No January Effect in January — The usually reliable “January effect” was not
apparent this month with many of the main indices across Europe finishing in
negative territory.
•High Quality / Low Risk — As January progressed risk aversion heightened to the
point where high quality and low risk were the only styles to post positive returns.
All other factors finished with negative returns.
•RAM Monitors — The lack of clarity on the strength and duration of the economic
recovery continues to weigh heavily on investor minds. One measure of this is
through Economic Growth RAM Monitor. The market started January by pricing
stocks for increasing growth, only to reverse this trend later in the month.

Full Report HERE

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