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Markets are called to open higher this morning. This is what's happening today:
What a great way to start the New Year! On the first day of trading for 2013 we saw the NASDAQ up 3.07%, the DAX up 2.19% and the FTSE up 2.2%. What's interesting is also trading volume. In the US, $7.8bln worth of shares were traded compared to the daily average of $6.42bln. The fact that we aren't seeing low volumes is a positive sign. However, the rally was expected after the deal made in the US. The markets were worried the Democrats and Republicans weren't going to come to an agreement – hence the weakness we had seen in the markets towards the close of 2012. However, the fiscal cliff has now been put on the back burner and investors are putting risk back on the table.
Yesterday I gave you a list of stocks which I think would do well in 2013. In Europe, the DAX was up 2.19%, SAP up 2%, BNP up 4.4%, Arkema up 4.24%, BMW up 3.71%. Regarding the US stocks, Apple was up 3.2%, Footlocker was down 1.62%, Ingredion up 4%, SPDR Gold Shares up 0.72% and Google up 2.2%.
The stocks have performed better than the markets in general becuase they have higher beta meaning they carry higher risk. Considering that investors are willing to take more risk, it makes sense to move into cyclicals and away from non-cyclicals for the time being. However, in hindsight, don't forget the lessons of the past. We had seen a very nice rally in Q112 with the markets up 30% for the year, but all that was lost in Q212. Just remember that bulls and bears make money but pigs get slaughtered.
It is a must to have a strategic asset allocation in your portfolio. Every investor should have an Investment Policy Statement which is filled up together with their portfolio manager so that he/she will know what the portfolio goals of the client are and the client would know what he should expect out of his portfolio. Although taking a long term view is important, it is also important to shift the portfolio strategy in the short term to take advantage of changes in investors' sentiment. Adopting a tactical asset allocation in the short run is beneficial in order to add alpha to the portfolio and try to perform better than the market during the year.
Investor education section: Meaning of risk aversion
When advisors meet up with clients, the first thing clients say is that they are risk averse. Most people are risk averse and that means that in order for them to take on risk they have to be handsomely rewarded. For example a risk averse individual would not bet E150 in order to potentially double his money or lose it all. In order for a risk averse investor to take on risk he must gain much more. Example in order to bet E150, a risk averse investor would be more willing to take the bet if the probabilities are 50% – 0 and 50% – E400.
Information on stock in CC's the equity list – Arkema
Natixis – Arkema : Confident about 2013 Arkema should prove resilient in 2013 (USA, defensive sectors, pricing power) amid conditions that will remain tough (euro crisis, commodities cycle trough, volatile raw material prices). Target price raised to €88, Buy rating reiterated.
Please do contact your advisor for more information on Arkema or other stocks and bonds we follow. It is imperative that you know what you own!
Good day and happy trading!
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