Snapshot

Markets

Our multi-asset investment views - June 2020


Multi-Asset Investments

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Key

MAIN ASSET CLASSES

 
 
 

Equities

We believe the sectors that are more sensitive to the economic cycle can catch up with the strong performance of defensive shares (equities that tend to be more stable during economic cycle) as the global economy reopens over the coming months. Overall, the fundamental outlook is still weak but inflows into markets continue to support prices.  

 

Government bonds

We remain neutral. With prices remaining at historically high levels, the effectiveness of bonds as a ‘protection position’ has deteriorated.  

 
 

Commodities

We have upgraded our view. Commodities appear to have reached their low point for the moment and a price recovery has started, led by the energy sector.

 

Credit

We remain positive on corporate bonds overall, driven by central bank financing programmes on both sides of the Atlantic, combined with a reduction in interest rates across developed and emerging markets (EM).

Equities

 
 

US

With price levels having rebounded close to all-time highs, we expect other regions to catch up as the global economy reopens. We remain neutral for now.

 

UK

Our view on UK equities is unchanged due to continued price weakness caused by lockdown measures added to renewed concerns over a no-deal Brexit.

 
 

Europe

Europe is now our preferred equity market, as the European Central Bank (ECB) continues to support shares’ liquidity while the prospect of fiscal coordination between eurozone countries is reducing concerns about the political outlook.

 
 

Japan

The cyclicality of the market, a large fiscal response and the relatively limited economic impact from the virus in Japan should allow for further recovery in share prices.

 
 

Pacific ex-Japan

We have upgraded our score as fiscal and monetary policy have dampened the impact of lockdowns.

 

Emerging markets

We remain neutral. The potential for increased trade tensions between China and the rest of the world continues. We continue to favour the cyclical and technology-heavy markets of Korea and Taiwan.

 

Government bonds

 
 

US

At current yield levels, we believe that US Treasuries will struggle to deliver significant returns. However, we are less negative compared to some European markets where yields are even lower.

 
 

UK

Relative to other developed markets, such as the US, we believe there is less value in UK government bonds given their relatively poor relative return, which may lead to investor outflows in the coming months.

 

Germany

The proposed €750 billion European Recovery Fund will effectively mean debt mutualisation within the eurozone (debt sharing between EU countries), which is negative for German interest rates.

 

Japan

The Bank of Japan continues to expand monetary policy in the form of liquidity for businesses, while the government also tries to alleviate the damage caused by the virus.

 

US inflation linked bonds

Although published inflation data has been weak, we remain neutral as the short-term direction is not clear.

 

Emerging markets local currency bonds

EM valuations remain attractive, particularly in longer maturity bonds, with inflation less of a concern than in previous crises in view of its relatively low starting point.

 

Investment grade credit

 
 

US

We remain positive as the Federal Reserve’s (Fed) support measures – it has moved to buy these bonds - continue to benefit the US investment grade (IG) market.

 

Europe

Although we still prefer US investment grade (IG) corporate bonds, we see support from the ECB helping to underpin the market for the foreseeable future.

 
 

Emerging markets USD

We have downgraded EM sovereign credit based on prices and the ongoing deterioration in credit quality (issuing companies’ ability to pay back their debt) of some of the lower ranked names.  

 

High yield bonds (non-investment grade)

 
 

US

We remain positive as US central bank policy initiatives continue to support the high yield (HY) market.

 
 

Europe

The expansion of the Pandemic Emergency Purchase Programme leads us to upgrade HY corporate bonds. The programme now provides a bridge to the European Recovery Fund, which should become effective in 2021 and support HY bond issuers.

 

Commodities

 
 

Energy

There is less surplus oil following OPEC cuts (supply reductions now continuing til end July) and, with activity recovering, demand for inventory has also increased.

 

Gold

Central banks remain dovish, providing ample liquidity where necessary. As a result, we expect gold prices could continue to rise from current levels.

 

Industrial metals

Positive as the fall in metal prices has run its course, and a strong recovery has been observed in construction data from China, as well as in infrastructure spending.

 

Agriculture

Agriculture markets have levelled out for the time being. We remain aware of the backdrop of weaker economic demand and the re-emergence of US-China trade tensions.

 

Currencies

 
 

US $

The weak growth outlook should support the dollar strength; however, its expensive price level and the effect of the Fed’s liquidity measures mean we remain neutral.

 
 

UK £

Due to the better range of cyclical opportunities on offer now in Europe and the return of Brexit uncertainty, we downgrade sterling to neutral.

 
 

EU €

Upgraded to positive as the ECB has triggered a meaningful monetary response and the launch of credible fiscal action from EU members. Although the euro has appreciated significantly since the announcement of the recovery fund, we expect further upside.

 

JPY ¥

While liquidity and signs of an economic recovery are providing positive momentum, the risks of a pull-back driven by fundamentals warrant a neutral score.  

 

Swiss franc ₣

We remain neutral on the Swiss franc given its high price, while acknowledging its continued role as a safe haven currency.

 

Source: Schroders, June 2020. 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.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

 

The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

 

This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

 

Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.

 

Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).

 

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The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.