Monthly Asset Analysis: Market Returns and Opportunities to Seize in January

The updated monthly asset allocation table is now available here.

Ever heard of the January effect? We've just experienced a model of its kind. The trends that had tipped sharply into the red at the end of last year have now reversed spectacularly. So much so, that of the six equity markets that were all sharply down in December, only two are still in negative territory today. However, we must beware of being too quick to believe in the bull's return. Despite the impressive rise of the last month, the trends are only just positive, not to mention the fact that the markets that turned around the strongest were already those that were overpriced.

Swiss equities have returned to what we saw in the second half of 2018, i.e. a very slightly positive trend, but with prices totally deterring. This is still a market to avoid, and will remain so until it undergoes a real purge. The situation is virtually identical in the USA, where valuations are even more extreme. The trend, although now slightly positive, is clearly down on last year's levels. Avoid!

In Europe, prices are much more accessible, but unfortunately, prices continue to trend downwards. The same goes for Japan, except that in the Land of the Rising Sun, the market is clearly undervalued. Our Japanese friends are going to have some very nice moves to make as soon as the market stabilizes. In any case, I'm looking forward to it!

Canada is at equilibrium, with a trend that is now just positive, and decent valuations. There may well be a few good opportunities to be found over the next few days, although the recent turnaround may be short-lived. In any case, I'll be sure to keep my screeners running over the next few days to see if there are any good opportunities to be had.

Last, but not least among equities, emerging countries. For several months now, I've been saying that valuations there are extremely cheap, and I've been waiting for a turnaround. Today, it seems to have arrived, with a clear trend. There's no doubt that the equity market is the most promising at the moment. Here too, I won't hesitate to fire up my screeners whenever I can find a moment.

No change, however, for medium-term government bonds, which remain hopelessly overpriced, with increasingly negative rates... The trend is slightly positive, but losing speed. So we're staying cash. Gold, on the other hand, is turning a dark green, with a very attractive valuation relative to equities, not to mention a very positive trend. I'm delighted to be invested in gold again!

Real estate remains my permanent allocation strategy, and leverage strategies based on US indices are still a long way off, given the price levels on the other side of the Atlantic.

Finally, it's worth noting that the target cash allocation has fallen sharply, due to the resurgence of Canadian equities and, above all, emerging markets. I now have 50% of cash, and I won't be going back to 20% tomorrow, even if I find several interesting stocks in these markets over the next few days. It has to be said, though, that I'm still skeptical about the January surge.