Our multi-asset investment views for February 2019


Asset classes



The improvement in investor sentiment following the recent change in the Federal Reserve’s (Fed) policy stance is supportive, but we still expect equities to trade within a range, albeit with heightened volatility.


Government bonds

Weaker economic growth supports bonds overall, despite some expensive valuations. Our score remains neutral.



Gold should benefit from lower interest rates, while energy remains volatile.



January saw an unusually strong and uniform rally across credit sectors. Continued policy tightening has seen most credit categories recover significantly from their lows at the start of the year.





With the recent change in the Fed’s policy stance, worries over “recession in 2020” have softened and are likely to support investor sentiment in coming weeks, but risks to the earnings outlook remain unanswered.



European equities appear cheap but this is warranted, in our view, given the political and cyclical challenges facing the region.



Downgraded, as UK equities are likely to see the support from a weaker sterling decline.



Japanese equities have underperformed global equities in local currencies in recent months, despite improved valuations and stable economic growth. Lack of confidence - particularly among international investors - remains a challenge and is likely to take time to resolve.


Pacific ex-Japan

Asia would benefit if trade war tensions fade. However, many countries are seeing weakness in their housing markets with a knock-on economic impact.


Emerging markets

EM forward valuations are now back to 2015 levels after the large sell-off in 2018. The Fed pause and Chinese stimulus are likely to provide support for EM equities while investors continue to wait for resolutions of US-China trade conflicts.


Government bonds



US bond yields look fairly priced after the recent dovish move by the Fed.



The bond market is not pricing in enough hikes for the UK. There will possibly be a hike, as indicated by the Bank of England, if there is a Brexit resolution.



European data continues to disappoint, and our view is that German growth is being suppressed by fears of a European recession.



Japanese activity data continues to show weakness in external demand and the manufacturing sector. The headwinds are also being reflected in Japanese earnings.


US inflation linked

We maintain a positive view that US breakevens offer value.


Emerging markets local

We remain neutral. Whilst cyclical (dollar) and technical (outflows) factors have improved, valuations have already moved back to long-term averages.


Investment grade (IG) corporate bonds



Spreads do not yet appear excessive when compared to recent historical highs (2011 and 2016). We remain concerned about the deterioration of credit quality in the universe.



We are of the view that European investment grade spreads offer better short-term value, particularly should our core “muddle-through” scenario for the eurozone prove right.


Emerging markets USD

Following a challenging December, there were positive excess returns which may well continue in the near term given the accommodative backdrop.


High yield bonds



Remains stable for now although expensive on a historical basis. Strong levels of interest coverage support US high yield (HY) for the moment.



Despite recent inflows, it is too early to say whether this represents a secular shift, as this would require stabilisation in economic data and an improved political backdrop.





The oil market in 2019 looks largely in balance but we expect heightened volatility.



Despite the equity market rally, gold has not given back the gains it made through the equity market tumble in December thanks to a dovish Fed and weaker US dollar (USD).


Industrial metals

Industrial metals have limited upside unless China introduces large-scale fiscal initiatives.



Agriculture remains our preferred way to gain exposure to the political premium of US-China negotiations, supported by favourable valuations and weather risks.




US dollar

We remain neutral on USD as both global and US growth are slowing down, causing the Fed to pause their hiking cycle and loosen liquidity conditions marginally.


UK sterling

The outlook is uncertain whilst awaiting the Brexit negotiations to be concluded; economic growth is slowing and that should increasingly weigh on the currency.


Euro €

We see the euro staying range-bound, hemmed in by both the dovish Fed and the European Central Bank, which is turning less hawkish as economic growth weakens in the eurozone.


Japanese yen ¥

The Japanese Yen remains an excellent hedge against slowing global growth. We expect the currency to strengthen as US yields decline in response to coincidental slowing US growth.


Swiss franc ₣

The Swiss franc (CHF) has weakened as risk conditions have improved and is at the bottom of its trading range. We expect ultimately weak growth fundamentals to trump liquidity, meaning that chasing CHF weakness is not justified.