Stocks will outperform bonds by a smaller margin in 2010, as the risk trade that fuelled the rally in 2009 loses momentum, says Vincent Delisle, strategist, Scotia Capital Markets.
On Monday, Mr. Delisle reduced his equity exposure to 63% of his total portfolio, down from 68% previously. He increased his bond exposure by 3% to 29% and added 2% to his cash position that now stands at 8%.
"Equity weightings should be gradually reduced this year and cash levels gradually increased," the strategist said in a note to clients.
Although his confidence regarding stocks is waning, he said equities should continue to flourish in the first half of the year. After that, however, monetary policy shifts toward higher interest rates combined with the timing of exit strategies by governments around the world will prove more challenging, he said.
Mr. Delisle said equity indexes could post a total return of between 5%-7% over the next 12 months. By comparison, he expects corporate bonds to gain between 2% and 4% and government bond returns to remain flat to slightly negative.