Exposure rates of the Dorval Asset Management Range – 20th May 2022

With both cyclical and monetary conditions still challenging, the equity markets’ sharp correction since the start of the year now raises questions on the timeliness of incorporating risk back into portfolios.

The outlook for growth is still on a downward trend, although a recession is not the most likely scenario for the short term. The OECD’s weekly real-time GDP tracking tools still do not point to a falloff in growth (cf. chart 1).


Weekly variation vs. last year
OECD GDP tracker weekly estimates

France / United Kingdom / Japan / United States


Meanwhile monetary conditions are also hostile with the prospects of interest rate hikes across all industrialized nations, with the significant exception of Japan. These rate hikes are supplemented by the central banks’ actions to halt asset purchases, followed by their balance sheet pruning efforts. The markets have already priced in a hefty portion of these changes, as indicated by financial conditions indices (cf. chart 2).


Financial conditions index
Calculated by Goldman Sachs

Tightening / Easing
Japan / Euro area / United States


The current context quite naturally includes a compression in equity valuations as a result of: (1) a fairly high starting point in absolute terms, (2) expectations of an economic slowdown and (3) the effects of central banks’ moves to tighten monetary policy. This process is already well under way, particularly across the world excluding the United States with valuations below their historical averages. The US market has quickened its correction since the start of May and reduced its valuation premium (cf. chart 3).



It is hard to say whether valuation multiples have completed their compression process. However, at best we can assume that they have covered a substantial part of this path, particularly if we rule out a recession scenario for the short term.


We continue the movement kicked off last week as we tactically increase our equity exposure, consistent with our various funds’ risk profiles.



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