Investments: Our strategists take on more risk – slowly, slowly


Danske Bank’s strategists assess developments and potential in the financial markets – and explain why we have recently increased risk in our portfolios.

The coronavirus outbreak appears to have peaked in many countries and a quite a few economies are beginning to gradually reopen. Does this mean that investors should begin to take on a little more risk in their investments?

“Both yes and no,” says chief strategist Henrik Drusebjerg.

“At Danske Bank, we are not yet at the point where we wish to increase risk in our portfolios by significantly upping the share of equities. Instead we have slightly increased risk in the fixed income component of our portfolios, more specifically by raising the share of investment grade bonds and reducing the share of government bonds. Hence, you could say we are increasing the level of risk in our investments very cautiously,” explains the chief strategist.


At the moment investment grade-bonds stand out as the best means of capitalising on increased credit spreads without running too high a risk.

Henrik Drusebjerg

Chief strategist, Danske Bank



Still plenty of uncertainty ahead 
Following the very pronounced fall in equity prices at the end of February and in March, prices rebounded strongly in April, which was the best month for equities since 1987.

However, after the impressive upward momentum of the past month, we expect the pace to slow considerably in equity markets going forward. For even if we are over the worst in terms of the virus and lockdowns, the coming months will nevertheless likely be a period of disastrous economic numbers and disheartening earnings for many companies, plus we are unsure just how long the economic reopening will take. Moreover, we risk a renewed flare-up in the trade war between China and the US as Donald Trump and his administration increasingly blame China for the global virus outbreak,” says Henrik Drusebjerg.

Given the above, Henrik Drusebjerg foresees a bumpy road ahead for equity markets in the coming months, which is why he is instead focusing on the opportunities afforded by the fixed income markets, where investment grade bonds stand out, according to the chief strategist.

Investment grade bonds have become more attractive 

Investment grade bonds are corporate bonds of high quality – in other words, corporate bonds from the more secure end of the spectrum. Nevertheless, these bonds still have a higher credit risk than very secure government bonds from Denmark, Germany, or the US, so naturally investors also receive a higher yield or interest rate as compensation for the higher risk.

“At the beginning of the year, however, this excess yield was close to a 10-year low, while it is now substantially above the long-term average, as the corona crisis did not only result in price falls on equities, but also on many types of bonds. That is why we currently see a number of attractive return opportunities here,” says Henrik Drusebjerg. 


The massive economic assistance packages, low interest rates and subdued oil prices provide a solid foundation for economic growth, and at Danske Bank we expect a reasonable single-digit return on equities over the coming 12 months. However, as mentioned, equity markets could face more of an uphill struggle going forward than over the past month.

Henrik Drusebjerg


Corporate bonds possess attractive qualities right now 

The chief strategist points to the following characteristics of investment grade bonds that he currently finds attractive:

1. The corona crisis has generally resulted in higher excess yields – also known as credit spreads – on so-called credit bonds relative to more secure government bonds. As well as investment grade bonds, this also applies to emerging market bonds and high-yield bonds, which are corporate bonds of low credit quality. However, these other types of credit bonds are riskier and more vulnerable to an economic downturn and further market turmoil than investment grade bonds, which right now stand out as the best means of capitalising on increased credit spreads without running too high a risk.

2. In March, the central banks launched a programme of historic proportions to buy up bonds and thus support credit markets, so that companies and governments could continue to raise funding under reasonable terms. As part of the programme, central banks also plan to buy up investment grade bonds, and we expect this will help put a safety net below bonds in the time ahead, should the corona crisis flare up again in the financial markets.

Reasonable 12-month return on equities 
More generally speaking, Henrik Drusebjerg continues to expect a recovery in economic activity in the second half of this year, even though the process will of course be gradual.

“The massive economic assistance packages, low interest rates and subdued oil prices provide a solid foundation for economic growth, and at Danske Bank we expect a reasonable single-digit return on equities over the coming 12 months. However, as mentioned, equity markets could face more of an uphill struggle going forward than over the past month. Equity prices will presumably require solid progress in terms of the coronavirus and the economy before we see further significant increases, and there is no little risk of setbacks along the way,” concludes the chief strategist.

This content is not investment advice - you should always speak to an advisor about how a possible investment matches your investment profile before making an investment.