“People are still cautious; there is still demand for bonds and people are not ready to move into the more risky equity space,” Nolting said in an interview. The perception “is that there are a lot of risks out there and a lot of uncertainty.”
Markets have been reeling from unexpected events including Britain’s vote to leave the EU and the election of Trump. Populist candidates in the Netherlands, France and Germany are stoking fears of a breakup of the EU, adding to the uncertainty.
Deutsche Asset Management has cut European holdings in its multi-asset funds to the lowest on record due to how European elections may impact markets. Currencies are now one of the most important asset classes as investors keep cash on the sidelines or in bonds.
“We don’t expect a massive shift from bonds into equities as equities still represent a different risk profile,” he said.
Expectations of a massive shift from bonds into equities — the so-called great rotation — has split financial market observers.
Charles Schwab’s chief global strategist Jeffrey Kleintop has said the trend has years to run, while Citigroup and Goldman Sachs analysts have questioned whether the trend is sustainable or even exists at all.
Political uncertainty will continue to affect markets this year, Credit Suisse chief executive Tidjane Thiam said this week. Clients at the bank’s wealth management unit were holding higher cash balances late last year and looking to take “downside protection” against a fall in global markets, he said.
“We’re going to see a lot of volatility. I, like many people, worry that there’s too much comfort right now and maybe some uncertainties are underestimated, particularly political ones, and as we get closer to some of those moments you’re likely to see spikes in volatility,” he said.