The commodities sector, in particular, has been one of the best performing since the markets closed on 23 June, even before the outcome of the vote was revealed, Greetham indicated.
And the asset class continues to benefit from a relatively soft dollar, he added.
Although the dollar is strong against the Euro and the pound currently, said Greetham, it remains soft relative to its trading partners in Asia, Japan and Canada. The Fed’s loose policy background also suggests the dollar could remain soft in the near term, he stated.
Similarly, with the Fed out of the equation, Greetham expects emerging markets to beat global equities over the summer.
“I’m not saying commodities and emerging markets will be unscathed if there are periods of stress over the summer,” Greetham qualified. “These are risky assets and can be quite high beta versus the market generally.”
“What we are saying is if these big shocks happen over the summer, you’ll find that these are good areas to buy. As markets recover from negative sentiment, if the dollar is still relatively week because the Fed isn’t hiking rates and Euro and sterling are starting to bounce, then that is actually pretty good for these parts of the world.”
As for UK equities, Greetham argued unresolved political risk could lead to further dips over the next few months.
“I would caution people to keep UK equities very close to neutral,” Greetham urged. “On the one hand, the devaluation of the pound as we have seen over the last week or so can be a big boost to large-cap exporters and multinationals. On the other hand, UK equities is where all the political and currency risk currently resides.”
The point is, we don’t know which direction sterling is headed in the short term and we aren’t sure how the UK market would respond to these swings in the pound, he said.
“We are trying to keep the UK fairly neutral and keep an active position in the portfolio where we see absolute benefits,” Greetham emphasised.
