Goldman takes more pro-cyclical tactical view

Goldman Sachs said it was shifting its investment stance to be more pro-cyclical over a three-month view and keeping a modestly pro-risk allocation over 12 months with low potential for returns.

The investment bank said it preferred credit to equity in the near term because credit benefits from policy support, is lagging in the recovery and is more sensitive to growth momentum. It has upgraded equities to 'neutral' from 'underweight' over three months and shifted bonds to 'underweight' from 'neutral'.

"Our economists expect a strong pickup in global growth - we have added procyclical exposure across assets on a tactical basis," Goldman's Christian Mueller-Glissmann wrote in a note to clients.

Over 12 months Goldman is overweight equities, commodities and cash, neutral on credit and underweight bonds.

Goldman's risk appetite indicator is at neutral but appetite momentum is high and this should point to slowing equity returns in the medium term but growth pricing is not bullish yet, it said.

Other sentiment indicators are neutral in aggregate but signals diverge with retail investors taking bullish positions while other indicators are bearish.

High equity risk premiums and greater optimism about growth could support higher values but these will become a "speed limit" for returns, Goldman said.

"The likelihood of a 'fat and flat' range with a more 'risk off' episodes remains high, e.g. in the event of second [Covid-19] waves," Mueller-Glissmann wrote. "And there are risks outside of Covid-19, including US/China trade tensions, emerging market fragility and US political risks and a fiscal cliff."