In this multi-asset market intelligence column, our expert discusses the calm after the storm in the market in the fall of 2015.

1. The calm after the
storm
Valentijn van Nieuwenhuijzen
Head of Multi-Asset
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2. During the first months of the year, investors were plain sailing, helped by easy monetary policy, robust
economic data and stronger currencies. In euro terms, almost all asset classes generated positive returns.
But before the summer had even really started, a strong headwind got up as Grexit scenarios were taken
off the shelf and Chinese stocks declined more than 30% within a few weeks. As we are not big thrill
seekers, we decided to stay close to the coast and reduced our exposure to risky assets. Equities and real
estate were reduced to a neutral position and within equities we removed our preference for the
Eurozone. On both issues, hitting the iceberg has been avoided. Europe agreed to negotiate a new bailout
for Greece and the Chinese government took drastic measures to stabilise the Chinese A-share market.
the client’s funds. Rather than keeping our intelligence to ourselves, we shared it in a way that put the
interests of our partner ahead of our own. The client valued the integrity of our advice.
This is not to say that blue skies have returned. Greece still
has a long, bumpy road to go, but at least it may no longer
make daily headlines in the coming months. China, in turn, will
have to regain credibility with international investors, as
recent measures were not a good example of a liberalised
market with free movement of capital. Roughly 20% of the
Chinese A-shares are still suspended from trading and a swift
inclusion of A-shares in the MSCI Index seems to be out of
reach for now. This is occurring at a time of continued
downward revisions of the Chinese growth outlook and a
significant debt overhang. Plans to convert debt into equity
are to be shelved for the time being.
However, as we are – at least temporarily – back in calmer
waters, we decided to bring our tactical allocation to
government bonds, equities and real estate back in line with
the positive signals from our model. As a result, we are
overweight equities again. Positive drivers are the cyclical
momentum, valuation and an improvement in price
momentum. Next to that, we do not observe over-optimism
among investors; the bull/bear ratio is low. In line with
equities, we moved real estate to a small overweight.
Fundamentals remain supportive, with the improvement in
the labour markets in the US, Europe and Japan as an
important driver. Even the Chinese property market is
showing some signs of stabilisation. Not only fundamentals
are supportive, real estate also benefits from a yield premium:
dividend yields of real estate stocks are on average about
200 basis points higher than corporate bond yields, almost
double the long-term average. The biggest short-term risk is
a rate hike in the US, which in our view is still insufficiently
priced into the US bond market.
The risk of a new, rapid rise in German 10-year government
bond yields declined. The drop in commodity prices and low
wage pressures limit inflation expectations. Global monetary
policy remains accommodative. Finally, price momentum in
government bonds has improved. Despite the stabilisation in
Greece and China, we did not see any upward pressure on
bond yields, which makes us wonder whether there are other,
less visible forces at work. As a consequence, we have
upgraded our government bond positioning from a small
underweight to neutral.
The changes over the past weeks illustrate the basics of our
tactical asset allocation. We do not blindly follow our
navigation system, but adapt if unexpected risks or
opportunities suddenly emerge. We have a flexible, dynamic
approach: if facts change, we do not hesitate to swiftly adapt
our positioning to the new reality.
Valentijn van Nieuwenhuijzen
Head of Multi-Asset

3. About NN Investment Partners
NN Investment Partners is the asset manager of NN Group N.V., a publicly traded corporation. NN
Investment Partners is head-quartered in The Hague, The Netherlands. NN Investment Partners
manages in aggregate approximately EUR 184 bln* (USD 206 bln*) in assets for institutions and
individual investors worldwide. NN Investment Partners employs over 1,100 staff and is active in 16
countries across Europe, Middle East, Asia and U.S.
As of April 07, ING Investment Management has renamed to NN Investment Partners. NN
Investment Partners is part of NN Group N.V., a publicly traded corporation. Currently NN Group is
37.6% owned by ING Group. ING intends to divest the remaining stake in NN Group before 31
December 2016, in line with the timeline ING has agreed with the European Commission.”
*Figures as of 30 June 2015
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