Our multi-asset investment views - October 2021





We remain positive for now, although the potential for Q3 earnings to disappoint and peaking liquidity (when the availability of funds is at its most ample) remain key risks to monitor.


Government bonds

The strength of economic momentum has diminished whilst the peak in liquidity appears to be behind us. This will be a key headwind going forward.



Vaccine distribution, increasing global growth and fiscal stimulus (government spending and taxation policies designed to support economies over the short term) continue to drive stronger demand while supply conditions remain tight.



We maintain our negative score. Although fundamentals are improving, valuations remain close to extreme levels.




Q3 earnings expectations look to be a manageable hurdle in the upcoming weeks. This will be a key driver for higher returns against elevated valuations and less accommodative stimulus.



We remain neutral; positive news for the UK tends to be reflected in sterling strength, which is a headwind for the market’s international revenue. As such, we prefer to express our bias for economically-sensitive (cyclical) markets elsewhere.



Although we have a medium-term preference for Europe, driven by decreasing Covid cases, recovering growth and European Central Bank (ECB) monetary support (policies by central banks designed to stimulate economies over the short term) our tactical views offset this, so we move to neutral.



Despite high volatility around political developments, we await a catalyst for the market to lead and prefer Europe for cyclical market exposure.


Global Emerging Markets

Although valuations are attractive, vaccination rates remain low in many markets, suggesting their economic recoveries will be uncertain.

Asia ex-Japan



The headwind from Chinese growth and heightened regulations keep us on the side-lines. We need to see more signs of credit easing (a type of monetary support used by central banks involving targeted policies to improve the flow of finance/credit to particular areas of an economy) before considering re-entering.



EM Asia ex China

Whilst we continue to like the long-term story for Korea and Taiwan, investor sentiment has declined given global growth appears to be peaking. We therefore expect this to weigh on the market in the short term.

Government bonds



We have upgraded following the recent sell-off. Valuations no longer appear extreme, meaning prices look marginally cheap. However, yields could still grind higher.



The recent sell-off in global sovereign bonds was most pronounced in Gilts as the Bank of England (BoE) switched tone to being quite hawkish (monetary policymakers are often described as hawkish when expressing concerns about limiting inflation).



Our view is unchanged. Inflation expectations are accelerating faster compared with the US. Communication around policy post the Pandemic Emergency Purchase Programme also remains unclear.



The Bank of Japan continues to manage the yield curve whilst Covid-19 restrictions are likely to continue to weigh on activity.


US inflation linked bonds

Neutral. The market does not look ready to move higher on break-even inflation rates, which are market-based measures of expected inflation. A trade-off between higher oil prices and policy normalisation should keep inflation expectations muted.


Emerging markets local currency bonds

Poorer handling of Covid-19 and concerns over fundamentals mean we maintain our neutral view. We see selective opportunities in countries with attractive valuations.


Investment grade credit



With low credit spreads offering small returns, we continue to be concerned that US investment grade (IG) bonds could be highly vulnerable to shifts in sentiment, market technicals and rising rates. The credit spread is the margin that a company issuing a bond has to pay an investor in excess of government yields and is a measure of how risky the market perceives the borrower to be. 



Despite spreads remaining tight and valuations appearing stretched, we continue to prefer EU IG over US IG due to continuing support from the ECB.


Emerging markets USD

Concerns over Evergrande and Fantasia have led to jitters about contagion, leading us to revise up the projected default rate. Nevertheless, from a valuation perspective, emerging market corporate bonds continue to stand out as attractive.


High yield bonds (non-investment grade)



We have upgraded our view as valuations have drifted wider. Fundamentals continue to improve, and we expect this to persist, resulting in relatively low default projections.



We maintain our view as the sector continues to experience improved fundamentals, low default rates and has marginally wider credit spreads relative to US high yield credit.





We continue to favour energy, as it provides a good hedge against the risks that rising energy prices could pose to economic growth.



We remain neutral as the gold price is range-bound. We are looking for signs that the Federal Reserve will step back from tapering before we consider re-engaging.


Industrial metals

The policy stance in China has turned more proactive amid weakening data whilst demand outside China continues to recover strongly as global activity normalises.



We remain neutral as prices approach historical highs whilst weather volatility has resulted in supply disruptionshs whilst weather volatility has resulted in supply disruptions.




US $

We move to a positive view as we recognise the value the US dollar as a hedge against the risk of tighter liquidity (availability of funds less ample).


UK £

Although there is pressure from headline inflation, driven by high gas prices, sterling remains expensive, so we prefer to stay on the side-lines whilst we await further data.


EU €

We retain our negative view as we expect the ECB to remain dovish.



Remain neutral as valuations look cheap whilst the economic backdrop has become less supportive.


Swiss franc ₣

The economic backdrop has become less supportive; however, we wait for price action to be less stretched for a positive score.


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