Current views - August 2018
Cazenove Capital's investment team assesses the prospects for a range of asset classes and currencies
The UK is now one of the slowest growing economies in the G7. Brexit uncertainty leads us to remain cautious.
Slowdown in domestic economic growth and increased trade tensions could hamper earnings.
Strong US consumer and tax reform are supportive to earnings growth.
Japan has the most accommodative monetary policy and the yen remains undervalued.
Competitive currency, strong economic growth, continued earnings growth and attractive valuation are supportive factors. Caveat to this is an escalation in trade war and USD strength.
Emerging markets valuations look attractive relative to Western developed markets.
We remain negative on GBP and EUR bonds but US Treasuries are relatively more attractive given the normalisation of yields that is taking place.
Credit spreads provide a small pick-up in yields, but are at a historically narrow level so capital gains are unlikely. Returns will be driven by government bond markets. We see opportunities in some shorter maturity areas of the markets.
High-yield credit spreads are at a historically low level compared to Investment Grade credit spreads, so we remain wary.
Inflation-linked government bonds remain relatively attractive compared to conventional government bonds and will outperform if inflation expectations rise, which we anticipate.
Selectively, local emerging market bonds offer good interest rate and currency exposure.
Increased volatility and dispersion of returns should provide opportunities. We favour trend followers and long/short equity strategies.
Commercial property (UK)
Post-Brexit concerns have resulted in the marking down of property valuations, but income characteristics remain attractive.
Gold is attractive as a diversifier, portfolio insurance and an inflation hedge.