Asset allocation

Current views - November 2019

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

02/12/2019

Investment Team

Key

Asset classes

 
 
 

Equities

Valuations are above long-term averages but central banks’ actions continue to be supportive.

 
 

Bonds

Valuations are expensive with negative bond yields prevalent in Europe. We prefer USD bonds to EUR and GBP bonds. We prefer corporate bonds to government bonds.

 
 

Alternatives

Attractive diversification characteristics compared to equities and bonds. We favour gold as global central banks ease policy. We remain 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 market sentiment. Preference for value and small/mid-sized companies.

 
 

European

Weaker economic data and the uncertainty around trade tensions continue to be a headwind, offset by bolder easing measures by the European Central Bank.

 
 

North American

Economic fundamentals are relatively attractive vs. rest of the world and earnings growth expectations have moderated.

 
 

Japanese

Cheap valuations offset by weak domestic demand post-consumption tax hike.

 
 

Asia and Emerging markets

Valuations and fundamentals look attractive relative to developed markets. Slowing Chinese growth and trade tensions remains a headwind, but Chinese stimulus should be supportive.

 

 

Bonds

 
 
 

Government bonds

Valuations are expensive with negative bond yields prevalent in Europe. We prefer USD bonds to EUR and GBP bonds. We prefer corporate bonds to government bonds.

 
 

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 late stage of the economic cycle.

 
 

High-yield

The higher starting yield may see European high-yield outperform investment grade.

 
 

Inflation-linked

We prefer US TIPS to conventional treasuries. Sterling linkers also look cheap relative to nominal bonds.

 
 

Emerging markets

Emerging market bonds generally offer good value.

 

Alternatives

 
 
 

Absolute return

We like the diversification characteristics of trend following and market-neutral strategies.

 
 

Commercial property (UK)

Ongoing 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.

 
 

Structured products

Offer attractive returns but we acknowledge the shorter-term correlation with equities.

 

Cash

 
 
 

Cash

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

Author

Investment Team

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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