Our multi-asset investment views for May 2018


Asset classes



Outlook positive as earnings remain supportive, although we note the recent weakness in macroeconomic data and USD strength which could become near-term headwinds.


Government bonds

The sell-off leaves yields looking attractive relative to recent history, but we think they have further to rise to catch-up with the improvement in fundamentals.



The cyclical environment remains positive, lending itself to strong fundamentals for most commodities. Momentum is strong while carry continues to improve.



Late phase of the cycle coupled with high leverage means investors should demand higher risk premia moving forward.





Valuations continue to remain elevated, but we expect earnings growth will continue to be strong in 2018, driven in part by the US tax cuts and rising share buybacks.



We expect European growth to remain strong, although we are monitoring the impact of a stronger euro.



We remain neutral on UK equities due to the uncertainties around Brexit implications and better opportunities elsewhere.



Downgraded Japan to single positive as we do not see an immediate catalyst to allow Japan to outperform other major regions.


Pacific ex-Japan

Singapore continues to rank as our best country model, as earnings revisions momentum remains as strong as in the US, in addition to reasonable valuation levels.


Emerging markets

Our positive views on emerging markets remain unchanged, with stronger growth and relatively cheaper valuations.


Government bonds



Treasuries continue to look rich against a backdrop of negative term premium, a large increase in supply and higher currency-hedged yields available in Europe.



We remain neutral. Data has deteriorated, but with no hikes priced for the Monetary Policy Committee until November there isn’t a buying opportunity today.



The European Central Bank should end quantitative easing this year, leaving Bunds as one of our main underweights alongside US Treasuries.



No change. We considered downgrading to negative this month, but the Bank of Japan’s firm stance in April suggests that it is still too early.


US inflation linked

We remain positive on inflation despite the recent strong performance of breakevens. Upward wage inflation and oil price pressures should be supportive.


Emerging markets local

Downgrade to neutral. Carry is positive, but downside risks have grown: higher DM yields leaves EM rates less attractive and several countries have elections this year.


Investment grade credit



The increase in funding costs is likely to put pressure on debt coverage ratios.



Despite the year-to-date widening, valuations remain expensive.


Emerging markets USD

We have downgraded EM USD, as dollar strength aside, we find it hard to argue for EM spreads in a difficult mix of tight spreads and late cycle dynamics.


High yield credit



After a resilient performance YTD, we have downgraded to neutral: valuations don’t look attractive; some recent fiscal changes cause headwind over a medium-term horizon.



Fundamental picture for Europe remains generally stable and spreads have recently widened; however, valuations do not yet look very compelling, hence we stay neutral.





We maintain our positive view given the attractive carry and supply dynamics on the back of renewed tensions in the Middle East and a collapse in Venezuelan oil production.



We remain negative on gold which we expect to struggle in an environment of rising real yields and the stronger US dollar.


Industrial metals

Continue to look attractive against a backdrop of globally synchronised growth and a strong and stable Chinese economy. Momentum has also recently strengthened.



We are positive on agriculture, expecting it to perform well on the back of favourable supply/demand dynamics.




US dollar

There are signs of dollar appreciation but we are concerned about the effect of higher US rates on carry.


UK sterling

We have downgraded to negative, as we anticipate sterling continuing to fall on slowing activity and reduced capital flows.


Euro €

We expect the pace of euro strength to moderate in the coming months.


Japanese yen ¥

As long as US-China trade tensions remain contained, economic impact is limited, but a surge in the yen as a safe haven asset would be a headwind to Japanese exports.


Swiss franc ₣

We remain neutral as we continue to expect minimal intervention by the Swiss National Bank.