In a month in which both bonds and shares lost value, investors allocated no less than 10.5 billion to shares. While interest rates continued to rise and the Middle East was ravaged by a severe crisis, risk was nevertheless taken.
The reason for this is mainly that more and more investors see an end to central bank interest rate increases. This probably also explains why investors bought 3.8 billion worth of bonds. The fact that government bonds were particularly popular indicates that the defensive card was also drawn last month.
European shares are back in the spotlight
In terms of regional allocation, European investors again mainly opted for American shares (+6.1 billion dollars). That is seen as the most defensive choice. In addition, a significant amount (+2.4 billion dollars) also went to European equities.
It has been a long time since European shares attracted so much attention. Rode? Well, the low valuations undoubtedly played a role. The fact that the energy price is much lower than a year ago and the gas tanks are well filled may also have contributed to the recovery in European shares. In addition, there is increasing optimism that the interest rate peak has now been reached.
“It has been a long time since European shares attracted so much attention”
Less popular were emerging market shares (-$1.4 billion). Yes, these are also traded at relatively low prices these days, but the lackluster state of affairs in China is weighing heavily on sentiment. In the emerging market universe, China is a heavyweight. In addition, the dollar was very strong in October. That is always negative for emerging market shares.
Energy shares, not financials
Investors were fairly unanimous about sector choices. As much as $950 million went to the energy sector. It is a logical choice at a time of additional geopolitical tensions. Oil, like gold, is seen as an asset that can be used to hedge geopolitical risks. The fact that the oil price was at a high level also helped, of course.
It remains remarkable that financials were mainly sold last month. High interest rates are normally good for banks and insurers. The most recent profit figures also prove this. But investors apparently do not dare to take the risk. The recession fears have clearly not abated yet.
Clear bond preferences
Clear choices were made in the bond market in October. Nearly $4.2 billion flowed into government bonds and $1.3 billion flowed out of corporate bonds. October was an uncertain month. Then government bonds are an excellent option to park money for a high fee. The extra compensation provided by creditworthy corporate bonds was apparently too limited. That was apparently different with high yield bonds. The fact that these were purchased in October indicates that investors are satisfied with the risk reward that these bonds provide.
Investors were unanimous about the chosen terms. While for a long time investors mainly bought debt securities with short maturities, longer-term bonds were now in demand. This proves that investors clearly believe that interest rate hikes have come to an end and that interest rates will go down rather than up. That’s what I hear from customers. They are increasingly considering extending the duration of their portfolio.
“Investors clearly believe that interest rate hikes have come to an end”
There is no better investment than gold
Finally, gold remains to be discussed. For the first time in a long time, there was strong demand for gold. It is the way to dampen the risk of the portfolio. The conflict in the Middle East undoubtedly played a major role in purchasing gold.
While stocks and bonds mainly lost value in October, the gold price rose by 6.8% (in US dollars). Gold also outperformed the other asset classes ytd with a return of just over 10%.
Investors did not benefit from this, however. Since the beginning of this year, more gold has been sold than bought (-$6.1 billion). Safe debt paper with a yield of around 5% is a difficult competitor to beat. But with additional conflict in the world and prevailing uncertainty about future returns, gold has not lost its luster.