Economic & Strategy Viewpoint
Current views - July 2019
Our investment team assesses the prospects for a range of asset classes and currencies
Valuations are above long-term averages but central banks’ actions continue to be supportive.
Valuations have become very expensive with negative bond yields prevalent in Europe. We prefer USD bonds to EUR and GBP bonds. We prefer credit to government bonds. We are maintaining a short duration bias.
Attractive diversification characteristics compared to equities and bonds. We favour gold as global central banks ease policy. Remain cautious on UK commercial property.
Cash has defensive and opportunistic qualities in uncertain and volatile markets.
Brexit uncertainty continues to weigh on market sentiment.
Weaker economic data and the uncertainty around trade tensions continue to be a headwind, offset by bolder easing measures by the European Central Bank.
Economic fundamentals are relatively attractive vs. rest of the world and earnings growth expectations have moderated.
Concern about the impact of the upcoming consumption tax hike.
Slowing Chinese growth and trade tensions remain headwinds but Chinese stimulus should be supportive.
Valuations and fundamentals look attractive relative to developed markets, but trade tensions remains a headwind.
US Treasuries are relatively more attractive given a more supportive Federal Reserve.
Returns are likely to be driven largely by government bond markets. While corporate spreads are close to post 2009 averages, we are mindful of increasing company leverage and the late stage of the economic cycle.
Volatility will likely continue and will offer opportunities if spreads move sufficiently in either direction.
While we prefer linkers to conventional bonds, oil prices have fallen which has lowered inflation expectations. UK linkers are attractive as a Brexit hedge but the risk of an imminent no-deal Brexit has decreased.
Emerging market bonds generally offer good value.
We like the diversification characteristics of trend followers and long/short strategies.
Commercial property (UK)
Ongoing concern for the UK commercial property environment, but income characteristics remain attractive.
Gold is attractive as a diversifier, portfolio insurance and an inflation hedge.
Offer attractive returns but we acknowledge the shorter-term correlation with equities.