Our multi-asset investment views - July 2022





We maintain our negative view on equities. We have seen bond yields edge slightly lower, and while this may mean the derating in valuations is over, we note that earnings downgrades have only just begun, given the uncertainties around interest rates. Interest rates are a key component of discount rates, which are used to discount a company’s future expected earnings and cashflows in order to compute its theoretical value in today’s money, or “present value”.


Government bonds

Although valuations generally look fair and correlations between equity and bonds are starting to improve, the probability of bonds being a diversifier remains low as inflation could surprise further on the upside.



We remain neutral, as although supply is still tight, weakening global growth is hitting demand, particularly in the energy sector.



Given stagflationary concerns, our outlook remains cautious, with a preference for investment grade bonds (those that are believed to have a lower risk of default) over high yield bonds (those that pay a higher rate of interest as they have a higher risk of default, also known as junk bonds).




The stabilisation in valuations may imply that prices may be close to bottoming out; however, we feel earnings expectations still do not reflect the risks to growth.



We remain neutral as the positive characteristics of the defensive and commodity tilts in the index are offset by reductions in demand for energy.



The challenges posed by natural gas supply and cost issues, combined with the European Central Bank (ECB) being stuck between a rock and a hard place, will be a challenge for equity returns.



Japan is one of the few regions where inflation is welcomed. This should lead to some relative outperformance against other regions in the developed world.


Global Emerging Markets1

While the problems facing China seem to be alleviating, other emerging market (EM) countries face mounting inflationary pressure, meaning we retain a neutral score overall.

Asia ex-Japan



We are positive as China looks to have finally turned a corner as policymakers continue to ease conditions.



EM Asia ex China

We continue to believe that other regions in the EM universe appear more attractive.

Government bonds



We remain neutral as the determination of the US Federal Reserve (Fed) to bring inflation under control should anchor longer dated bonds at a higher level whilst simultaneously flattening the curve.



We remain negative as the growth outlook is gloomy and fiscal subsidies announced for households could push the Bank of England to raise interest rates further.



We remain negative on German bonds, although slightly less so than last month, given that the ECB has been slow in addressing strong inflationary pressures.



Our view is unchanged. The market continues to offer negative yields that provide poor value relative to other markets.


US inflation linked bonds

We have upgraded to neutral as the Fed remains determined to bring down inflation by aggressive rate hikes. If medium term inflation concerns continue to linger, inflation-linked bonds should benefit.


Emerging markets local currency bonds

Our view is unchanged as the economic environment remains challenging, with stagflationary as well as recessionary risks growing. Stagflation is a combination of slowing growth and accelerating inflation.


Investment grade credit



Our view is unchanged. While spreads have widened, any potential upgrade would require fixed income markets to stabilise and offer more attractive valuation levels.



The ECB is being less proactive compared to other central banks and spreads are extremely wide compared to the US, leading to attractive valuations.


Emerging markets USD

We have upgraded our view on the sector as it has significant exposure to the Chinese recovery and is now pricing in European risk.


High yield bonds (non-investment grade)



We remain negative as the technical backdrop is vulnerable with issuance of US HY low and fundamentals continuing to deteriorate.



We maintain our neutral score. Although credit spreads have moved a long way, there is no explicit support from the ECB, which is prioritising raising rates and ending asset purchases.





Supply is still tight; however, we are seeing signs of demand weakness outside the US where high energy prices and a strong dollar are squeezing consumers.



We downgrade to neutral due to mounting liquidity risks, which create issues around the short-term availability of money and wait to re-enter at better levels.


Industrial metals

We have downgraded our view to neutral. Ex-China demand looks uncertain and although Chinese activity is showing signs of recovery, potential lockdowns due to the zero-Covid policy will continue to drag on consumer and business sentiment.



We remain positive as input costs, a key driver, are still rising. Food security concerns are forcing governments of producing countries to control exports, keeping prices elevated.




US $

We continue to favour the US dollar. Despite the prospect of weaker global growth, the rise in inflation continues to push the Fed down a path of aggressive rate hikes, supporting the US dollar with its safe haven currency status.


UK £

The turn in the cycle and the worsening stagflationary environment, coupled with political instability have weighed on the currency. The pound appears to have priced these factors in appropriately, leaving us neutral.


EU €

The ECB continues to face a dilemma of having hawkish forward guidance on rates but lacking concrete measures to manage spread levels, which may tempt the market to test. Monetary policymakers are often described as hawkish when expressing concerns about limiting inflation.



We remain negative as we expect the depreciation in the renminbi (offshore) to continue. This will help to cushion the impact of reduced demand for Chinese exports as high energy prices weaken US consumer confidence and retail sales.



We have upgraded to neutral. While attractive on a valuation basis, the yen has not been a reliable hedge recently, but it should provide some protection against growth risks.


Swiss franc ₣

We have upgraded to neutral, noting the Swiss National Bank’s more hawkish stance and surprise rate hike. The franc’s negative carry means it is attractive as a short position.


Global Emerging Markets includes Central and Eastern Europe, Latin America and Asia.