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Our multi-asset investment views - December 2021





With a solid corporate earnings outlook, we remain positive despite the Omicron variant having the potential to disrupt the road back to normality. Overall, we expect equity returns to be more muted than the last year, but still positive.


Government bonds

The recent rally has left valuations expensive with central bank tightening imminent. The slowing economic recovery and tighter monetary policies (central bank measures designed to stimulate the economy) have flattened real yield curves. A yield curve plots yields of bonds having equal credit quality but differing maturity dates, and its shape gives an idea of future interest rate changes and economic activity.



We remain positive with the inflationary backdrop and supply constraints supportive. Furthermore, the market correction over the past month has improved the balance of risk and reward.



We have upgraded to neutral with credit spread widening across the board having improved valuations. Credit fundamentals continue to improve. 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.




The US continues to be one of our preferred markets. Valuations are rich but many companies in the market have pricing power and earnings appear robust.



Tilts to sectors such as energy and financials make the UK more interesting, but we prefer to express these themes more directly.



Europe has been our preferred market over the medium-term. While the market has performed strongly this year, we have moderated our view that it can be the standout performer across regions.



Despite recent fiscal stimulus announcements (government spending and taxation policies designed to support economies), uncertainty introduced by Omicron lead us to stay neutral, given the government’s use of tight restrictions to control previous outbreaks. The strengthening of the currency further weighs on the market.


Global Emerging Markets1

There are some signs of recovery finally showing in the region especially in countries outside China. We are upgrading our score to positive.

Asia ex-Japan



Valuations now look fair with offshore markets having corrected further. We expect looser monetary policy in China next year.



EM Asia ex China

Strong recovery observed in Korea led by the technology sector. Supply chain issues are still a concern in the region.

Government bonds



We are neutral on US bonds. Forward pricing reflects a flattening yield curve and dynamics characteristic of the latter part of the economic cycle. The curve also reflects an increasing pace of asset purchase tapering by the Federal Reserve. Asset purchases, or quantitative easing, were the means by which many central banks had injected additional money into the financial system in response to the pandemic.



We have downgraded the UK with upside risk to yields. Inflation is well above the Bank of England’s (BoE) target and the UK now has a flatter yield curve than other markets.



The European Central Bank (ECB) remains dovish despite eurozone inflation surging to its highest rate on record, driven by a spike in energy prices. German private sector growth has also struggled after the reintroduction of Covid restrictions in December.



The Bank of Japan continues to manage the yield curve and is unlikely to move soon.


US inflation linked bonds

The Omicron variant presents short term risk but our medium-term view that the market is more inflationary compared to the last decade is unchanged.


Emerging markets local currency bonds

Some emerging market central banks are further down the inflation and hiking cycle, which has led to attractive valuations. However, with the Fed tightening policy, defaults in the Chinese property market and the Omicron variant, it is still early to change our score.


Investment grade credit



We see some scope for credit spread stability and carry with signs of increased M&A and leveraged buy out activity. However, our long-term concerns over shifting sentiment, financing costs and technicals remain.



We expect credit spread stability and slight tightening in early 2022 when the liquidity from ECB’s asset purchase programme comes through.


Emerging markets USD

Ongoing, near term turbulence with the Chinese property market remains, but corporate markets continue to offer attractive value.


High yield bonds (non-investment grade)



Recent credit spread widening, improvement in fundamentals and valuations have led us to keep our neutral rating.



Similar to the US, fundamentals and valuations have improved. The ECB’s accommodative policy offers support and we expect further credit spread tightening.





We are positive on energy as supply dynamics will continue to be favourable for crude oil and natural gas prices.



We have kept our neutral view as the gold price is range-bound and already reflects ultra low real ( i.e. adjusted for inflation) bond yields.


Industrial metals

The policy stance in China has turned more proactive with the recent cut in the reserve requirement ratio (which determines the amount of money banks have to keep on standby). Demand outside China is recovering strongly as global activity normalises.



We remain neutral. Expected yields on this US soybean and corn harvest have rebounded but a spike in fertilizer prices risks a supply shock for the next planting season.




US $

We remain positive as the dollar continues to be a hedge against receding liquidity from the Fed. The economic slowdown will support the US dollar, which tends to perform counter to the economic cycle.


UK £

Despite a high level of inflation, policy divergence between the Fed and the BoE acts as a headwind to sterling.


EU €

We are still negative on the euro as we expect the ECB to remain dovish (monetary authorities are often described as dovish when using policy to maximise employment) given the weaker growth in Europe.



Macro backdrop is consistent with the weaker currency. Export growth is set to slow down in coming months and the trade-weighted renminbi (offshore) has strengthened.



Rising US rate expectations weigh on the Japanese yen as it is sensitive to rising yields compared to other currencies.


Swiss franc ₣

The economic backdrop has become less supportive. However, we are waiting for price changes to make valuations less stretched before we turn positive.


Global Emerging Markets includes Central and Eastern Europe, Latin America and Asia.