The old market adage “Sell in May and go away” is proving somewhat accurate in global equities this month, with the MSCI World Equity Index down -5%. The combination of an escalating trade war between the world’s two largest economies and inverting yield curves, has seen investors and traders rush to lock in the profits of the first four months of 2019. China facing stocks and global cyclicals/financials have performed worse than the benchmark index falls.
It’s easy to understand the rush to lock in some equity profits after the stellar gains of this calendar year. Clearly, short-term risks have risen and investors have been quick to price those risks in.
My approach to these sort of market situations is to rotate the portfolio a little to where I see greater total returns over the next 12 months. Considering the Australian ASX200 is the only developed world index actually up this month, in response to the surprise federal election result, I believe it’s prudent to selectively trim/sell Australian equity exposure, particularly where I believe a stock has hit our valuation and now offers little upside.