Stock market rally in autumn?

"New highs in September would be not a surprise to me," says Silvano Grimaldi, CEO of Zurich-based asset manager Grimaldi & Partners AG. However the holiday weeks will be marked by price fluctuations according to Grimaldi.

Many investors are uncertain today. The rapid pullback of the SMI from 8400 to 7250 points at the end of June also caused some surprise to experienced strategists. "It was an overreaction to the expected end of the ultra-expansionary monetary policy of the U.S. Federal Reserve," says Silvano Grimaldi. Meanwhile, the president of the European Central Bank, Mario Draghi, as so often, again strived to be reassuring. He stated that the interest rates would remain low for a long time. "This has stimulated expectations of a EUR rate cut in the fall, which some some Swiss banks are expecting, and liftedthe markets up," says Grimaldi.

SMI will continue to rise

Now, the SMI is back to 8000 points and some investors are frustrated to have missed favorable buying opportunities. However, Grimaldi advises to keep cool. The upward movement was indeed steep but the correction before it was alike. "The markets have to realign following the exit from the ultra-simulative monetary policy of the central banks, which always leads to increasing volatility." Grimaldi believes, however, that from the third quarter onward, the fundamentals should be coming to the fore. The improvements of the economic situation in the United States come into play. Grimaldi is expecting better corporate earnings, a further decline in the unemployment rate and stable inflation. "This is an ideal scenario to trigger a yearend rally."

Summer break offers buying opportunity

However, for the summer weeks Grimaldi remains cautious. The sharp increase in the SMI, but also in the DAX over the last few days, bear the traits of short squeezes (closing of short positions). That makes the market vulnerable to setbacks during the summer weeks. Grimaldi advises to use pullbacks for purchases. His favorites are the shares of Burckhardt Compression, Holcim, Schindler and Syngenta.

No Renaissance, only short-term opportunities

Also advised Grimaldi to exercise caution with gold. "The price of gold seems to have found a bottom, although we currently see signs of a rebound, which can temporarily bring the price per ounce up by 20 percent." According to Grimaldi it is important for gold investors to define a clear strategy. "Who wants to use a trading opportunity, can buy, but it should not expect a renaissance of the precious metal demand." The conditions for a strong gold price increase are missing: a weaker dollar and rising inflation, so the asset manager.

Regarding the emerging markets of China, Brazil and India, Grimaldi also advises to stay prudent. "In these countries, we didn’t see an economic recovery and the political unrest in Brazil should increase in connection with the Soccer World Cup in 2014." For the investment expert therefore the risks outweigh possible rewards in these markets. 

Moneycab – 12 July 2013