Our multi-asset views for October 2018


Asset classes



We have upgraded equities as valuations have improved and investor attention is moving away from trade wars and towards fundamentals.


Government bonds

We remain negative on duration, although the recent rise in yields has taken valuations closer to fair levels. Growth is robust and inflation pressures are slowly rising.



The cyclical environment remains positive from a top-down perspective, while most underlying sectors are supported by tight supply and demand characteristics.



There has been a renewed tightening of spreads, although developed market investment grade has lagged.





We keep a moderately positive view on US equities as they continue to demonstrate the strongest momentum in both price and earnings revisions.



While we expect European equities to grind out a small positive return into year-end, the market will struggle to outperform the global index.



If Brexit uncertainty abates, sterling could recover but this is unlikely to be supportive for UK large cap stocks given their global revenue exposure.



We have upgraded our view in recognition of the early signs of earnings recovery and relatively attractive valuations, and will look for opportunities to build up exposure.


Pacific ex-Japan

Trade war escalation could potentially impact growth, together with a strengthening dollar, which could also prove a headwind for profits.


Emerging markets

Valuations are attractive, especially following the significant sell-off so far this year. Investors may find the strong EM earnings story attractive in coming months.


Government bonds



The recent rise in yields has taken valuations closer to fair levels, but trade war-related risks and supply/demand dynamics may lead to a steepening in the long end.



Uncertainties around Brexit continue, and further rate hikes may not materialise until a credible Brexit plan comes to light.



Bunds remain expensive, with no rate hikes priced until late 2019 / early 2020. Nonetheless, the recent sell-off helps, so we may reduce our underweight soon.



We remain neutral as we expect monetary policy to stay firm given the persistently slack inflation.


US inflation linked

We remain positive on US inflation. While seasonal effects will turn negative, our latest research suggests that stagflationary fears will trump this technical factor.


Emerging markets local

We maintain a neutral view. Despite the improvement in local market valuations, cyclical headwinds are still present.


Investment grade (IG) corporate bonds


US IG corporate bonds

Fundamentals for bond holders are starting to weaken as shareholder friendly behaviour becomes more prevalent.


European IG corporate bonds

The difficult-to-price regional political risk and spreads only modestly above long-term norms suggests maintaining the existing underweight.


Emerging markets USD

We maintain our view that the regional mix and path of earnings marginally favours high quality EM corporates and sovereigns over their high yield counterparts.


High yield bonds



We expect the technical situation in US high yield to deteriorate and maintain our view that it is overpriced and vulnerable.



The European market is due a period of readjustment from what remain extraordinarily low levels of yield as conditions start to normalise.





Oil continues to lead the commodity rally, validating our positive view given the potential for supply shocks and tight global spare capacity.



With positions held outside the US at an all-time high (50%), we see higher sensitivity to the US dollar, which we expect to appreciate and weigh on gold prices.


Industrial metals

Fundamentals remain supportive given that we assume China will increase infrastructure spending and initiate policies to stabilise credit growth.



Agriculture should rebound from over-sold levels.




US dollar

Despite its expensive valuation, we see room for further deterioration in growth and political sentiment against a continued backdrop of liquidity tightness.


UK sterling

We do not see a strong case for excessive depreciation given that hard Brexit, having emerged as a serious possibility, now appears mostly priced in.


Euro €

Our negative view is unchanged as risk for further economic slowdown persists and political tension between core and periphery is ongoing.


Japanese yen ¥

Japanese growth remains robust and there are some signs of higher inflation, which will have an impact on Bank of Japan policy. JPY also acts as a hedge for a global slowdown.


Swiss franc ₣

With its status as a safe haven currency, CHF should see relative outperformance vs. EUR.