Asset allocation

Current views - February 2019

Our investment team assesses the prospects for a range of asset classes and currencies

06/02/2019

Key

Asset classes

 
 
 

Equities

Reasonable valuations and moderating growth, but peak earnings growth lead us to be neutral on equities.

 
 

Bonds

We prefer USD bonds versus EUR and GBP bonds. More attractive valuations in US inflation-linked and emerging market bonds.

 
 

Alternatives

Attractive diversification characteristics compared to equities and bonds. More cautious on UK commercial property.

 
 

Cash

Cash has defensive and opportunistic qualities in uncertain and volatile markets.

 

Equities

 
 
 

UK

Brexit uncertainty continues to weigh on sentiment.

 
 

European

Slowdown in domestic economic growth and the uncertainty around trade tension continues to be a headwind.

 
 

North American

Economic fundamentals and earnings growth are relatively attractive versus rest of world.

 
 

Japanese

Increasing concern about the impact of the upcoming consumption tax hike.

 
 

Asia Pacific

Slowing Chinese growth and trade tensions remains a headwind but a weaker dollar should be supportive.

 
 

Emerging markets

Valuations and fundamentals look attractive relative to developed markets, and a weaker dollar should be supportive.

 

Bonds

 
 
 

Government bonds

US Treasuries are relatively more attractive given a more supportive Federal Reserve.

 
 

Investment grade

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 lateness of the economic cycle. UK spreads have been particularly affected by Brexit concerns.

 
 

High-yield

Volatility will likely continue and will offer opportunities if spreads move sufficiently in either direction.

 
 

Inflation-linked

US inflation-linked government bonds are attractive compared to conventional ones and will outperform if inflation expectations rise again. Elsewhere they are fairly valued.

 
 

Emerging markets

Emerging market bonds generally offer good value and should continue to benefit from a weaker US dollar.

 

Alternatives

 
 
 

Absolute Return

Increased volatility and dispersion should provide opportunities. We favour trend followers and long/short strategies.

 
 

Commercial property (UK)

A general increase in concern for the UK commercial property environment, but income characteristics remain attractive.

 
 

Commodities

Gold is attractive as a diversifier, portfolio insurance and an inflation hedge.

 

Author

This article is issued by Schroders Wealth Management, which is part of the Schroder Group and a trading name of Schroder & Co. (Hong Kong) Limited, Level 33, Two Pacific Place, 88 Queensway, Hong Kong. Licensed and regulated by the Hong Kong Securities and Futures Commission. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

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