Our multi-asset investment views - March 2023
Competition from cash poses a speed limit to returns while economic clouds on the horizon lead us to be cautious.
🟢 Long / positive
🔴 Short / negative
🔼 Up from last month
🔽 Down from last month
Main Asset Classes
We remain neutral given the risk of further financial stress and expectations of a cyclical slowdown.
🟢 Government bonds
We remain positive as higher rates are beginning to bite, and economic activity is showing signs of slowing.
We remain neutral as slowing global growth, combined with easing supply dynamics suggests limited upside.
Although wider spreads provide opportunities to buy, we remain neutral due to uncertainty over bank funding costs.
🟡 🔼 US
We believe that valuations are now fairer after the recent correction, therefore a neutral score is now more appropriate.
Domestic issues are aplenty, but we remain neutral on valuation grounds.
🟡 🔽 Europe
Downgrading to neutral as sentiment is less positive and valuations are not compelling.
Whilst valuations are fair, we remain neutral given the expectations of an economic slowdown.
🟡 🔽 Global Emerging Markets1
We have downgraded to neutral as the combination of persistent inflation in the US and financial stress may, in the short term, put upward pressure on the US dollar and the asset class.
🟢 Asia ex-Japan, China
We continue to like China given its de-synchronised cycle and cheap valuations.
🟡 🔼 EM Asia ex China
In line with our view on global emerging markets, we are tempering our positive view.
We remain positive as we believe we are now closer to the peak in rates. Strains in the banking sector, falling inflation and signs of peaking in labour market conditions should allow the Federal reserve (Fed) to step back from tightening in the next few months.
We remain neutral. With gilt yields trading at reasonable levels, we see no strong reasons to take a positive or negative view.
We remain neutral as it remains unclear how high the European Central Bank will raise rates given growth is surprising on the upside.
Absolute yields are still unattractive compared to other markets, leaving us neutral.
🟡 US inflation linked bonds
We remain neutral. We prefer to take exposure through nominal bonds as we expect inflation to continue to fall.
🟡 🔽 Emerging markets local currency bonds
Given that any deterioration in sentiment and strength in the US dollar tends to be negative for emerging market assets, we have downgraded to neutral.
Investment grade credit
🟡 🔼 US
Credit spreads have widened to more attractive levels, and significantly so in the banking sector. We prefer to stay on the side-lines until the dust settles and we are more confident that spreads have stabilised. The credit spread is the margin that a company issuing a bond has to pay an investor in excess of yields on government bonds and is a measure of how risky the market perceives the borrower to be.
We are monitoring opportunities to re-enter as bonds in the region are more attractive than elsewhere but given current uncertainty, we remain neutral.
🟡 🔽 Emerging markets USD
Persistent inflation in the US and financial stress may put upward pressure on the US dollar in the short term. We have moved to neutral given this impact.
High yield bonds (non-investment grade)
🟡 🔼 US
We have upgraded to neutral for similar reasons to US investment grade (IG). Credit spreads have widened to more attractive levels, but we prefer to wait for now.
We recognise the region offers better value and more upside compared to the US but prefer to remain neutral for now.
Natural gas prices have found a floor following recent falls. Rebuilding of oil inventories in the US, slowing global growth and the continuation of Russian exports lead us to stay neutral.
Weakening growth, an easing of inflation pressures and peaking real yields should support gold prices, but after recent price rises, we prefer to wait for better levels to buy.
🟡 Industrial metals
The lack of any stimulus combined with more moderate growth targets from China has weakened the case for metals. In addition, declining global growth will continue to limit the upside for prices.
Increasing supply from both Ukraine and Russia and favourable crop conditions mean we stay neutral as prices are likely to remain rangebound.
🟡 🔼 US $
We have tactically upgraded to neutral as we recognise that persistent inflation in the US and Fed policy on rates may put upward pressure on the US dollar in the short term.
🟡 🔼 UK £
We have upgraded. Given growth relative to other regions appears to be troughing and politics could provide some upside, we have decided to neutralise our negative view.
🟡 EU €
The region’s growth prospects appear slightly better than elsewhere but for now, we retain our neutral view.
🟡 CNH ¥
Although positive moves on a China reopening should benefit the renminbi (offshore) and other related currencies, these are likely to be modest and so we remain neutral.
🟡 🔽 JPY ¥
Recent comments from the Bank of Japan implying that the cap on yields will not be raised have not been supportive for the currency, we have moved to neutral as a result.
🟡 Swiss franc ₣
We remain neutral as we expect the Swiss franc to perform in line with the euro.
1 Global Emerging Markets includes Central and Eastern Europe, Latin America and Asia.
Source: Schroders, February 2023. The views for equities, government bonds and commodities are based on return relative to cash in local currency. The views for corporate bonds and high yield are based on credit spreads (i.e., duration-hedged). The views for currencies are relative to the US dollar, apart from the US dollar which is relative to a trade-weighted basket.
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