Analysis: Holding nerve on 2013's big rotations

Wed Oct 2, 2013 3:34pm EDT
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By Mike Dolan

LONDON (Reuters) - Three down, one to go.

With the final quarter of 2013 now underway, global investors have watched all but one of the year's four dominant and lucrative themes play out with gusto. And their instinct appears to be to see out the year with all of them intact.

So far, 2013 has been defined by three big 'rotations' - from bonds to equities, from emerging markets to developed equities and more latterly a tilt from U.S. to European stocks.

The fourth theme - a significant strengthening of the U.S. dollar - has yet to crystallize and will most likely need the U.S. Federal Reserve to return to the theme of stimulus withdrawal once this week's U.S. government paralysis is resolved.

With the Fed still expected to start reducing its monthly bond purchases by year-end, strategists reckon all four jackpots may pay out.

So if markets appear relatively unfazed by a bumpy September calendar or political shenanigans in Washington or Rome, it's mostly due to a conviction these long-term strategies will endure into 2014.

The prospect of a still-broadening recovery of the world economy and a gradual "normalizing" of U.S. monetary policy still drive this thinking and tell many asset managers to hold their nerve.

"Discussions around the debt ceiling will add volatility (but) we think this should give us opportunities to reinforce our exposure to equity markets," said Nadege Dufosse, strategist at Dexia Asset Management.   Continued...

Traders work on the floor of the New York Stock Exchange, October 1, 2013. REUTERS/Brendan McDermid