Our multi-asset investment views - June 2024
We have upgraded our view on global emerging market equities to positive, but downgraded our view on UK, European, and Japanese equities to neutral. Find out more about our views on a range of asset classes here.
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🟢 Long / positive
🟡 Neutral
🔴 Short / negative
🔼 Up from last month
🔽 Down from last month
Main Asset Classes
🟢Equities
We remain positive and believe there is still potential for further growth.
🟡 Government bonds
We remain neutral. While inflation fell in May, our models still indicate valuations are fair. Interest rate cuts should underpin yield curves going forward.
🟡Commodities
We are neutral. Recent data has started to call into question the underlying manufacturing recovery. We took profits on our industrial metals position given how far markets have moved.
🟡Credit
US IG and HY yields have improved slightly over the month, but valuations remain stretched.
Equities
🟢US
We remain positive on US equities as they continue to lead markets. The overall growth outlook remains stable despite a potential slowdown in the market.
🟡🔽UK
We have downgraded to neutral. Although valuations are cheap and fundamentals are improving in the UK, we prefer to gain equity exposure through other regions.
🟡🔽Europe
Equity market performance has begun to narrow, and the soft landing narrative is now being reflected in prices, leading us to turn neutral.
🟡🔽Japan
We have moved to neutral. The positive impact of the weaker yen on Japanese equities is starting to fade due to rising import costs. This is leading to signs of deterioration in consumer sentiment and business sentiment for smaller companies.
🟢 🔼Global Emerging Markets1
We upgrade to positive. Many emerging economies have brought inflation under control, are running more prudent fiscal policies, and stand to benefit from the manufacturing recovery that is currently under way.
🟡 Asia ex-Japan: China
While we expect to see a stabilisation in Chinese markets after the recent recovery in exports, we prefer other EM markets such as those in Latin America, Taiwan, and South Korea.
🟢 🔼EM Asia ex China
The improvement in global manufacturing PMIs should continue to drive the export recovery in EM Asia markets, in particular cyclical markets such as Taiwan and South Korea.
1Global Emerging Markets includes Central and Eastern Europe, Latin America, and Asia.
Government bonds
🔴 US
While inflation in May has surprised on the downside, our models still indicate valuations are fair and we prefer to wait for better valuation levels. Inflationary pressures should continue to abate although the US labour market remains strong.
🟡🔽 UK
We expect the Bank of England (BoE) to start cutting interest rates soon as inflation weakens. However, service inflation is set to remain higher for longer, offsetting the effects of the softening labour market.
🟡 Germany
The European Central Bank (ECB) announced its first 0.25% interest rate cut in June. Eurozone inflation edged up in May, which means the ECB may decide to slow the pace at which it makes further cuts.
🟡 Japan
The Bank of Japan (BoJ) is expected to announce further interest rate hikes as higher import inflation and a scheduled rise in utility prices has driven inflation higher. We prefer to stay on the sidelines.
🟢 US inflation linked bonds
US inflation-linked bonds continue to offer a useful hedge against higher-for-longer inflation. Although headline measures suggest easing ahead, we remain positive for now.
🟡 Emerging markets local currency bonds
Although spreads and valuations are attractive, we prefer to express our views through currency positions.
Investment grade credit
🟡 US
Cash offers higher yields than US investment grade (IG) bonds and valuations are notably expensive. However, strong growth and an abundance in liquidity prevent us from turning negative.
🟡 Europe
Valuations are stretched but the shape of the European yield curve means the issue is less prevalent in Europe. We remain neutral.
🟡Emerging markets USD
As fundamentals are robust and yields appealing, EM corporates should be poised to gain from technical tailwinds. However, expensive valuations have led us to remain neutral.
High yield bonds (non-investment grade)
🟡US
We remain neutral as valuations are stretched.
🟡🔽 Europe
We have downgraded to neutral. European high yield (HY) spreads have tightened since last month and are still better value than the US, but we prefer taking risk exposure elsewhere in our portfolios.
Commodities
🟡 Energy
Energy markets remain broadly stable. OPEC+ has reduced production but is expected to re-introduce supply later in the year. Demand remains moderate with growth prospects mixed. As a result, we remain neutral.
🟢 Gold
We expect gold prices to remain underpinned in the longer term by physical market demand. We stay positive as prices should benefit from falling real rates whilst the metal can also offer protection against more persistent inflation and geopolitical risk.
🟡🔽Industrial metals
The medium-term case for base metals remains buoyant. However, considering how far markets have moved year-to-date and that technical factors are stretched, we downgrade to neutral.
🟡Agriculture
Mixed weather conditions globally are pushing up prices, but the sector remains without a clear overarching directional narrative.
Currencies
🟢US $
We remain positive in the US dollar given its diversifying properties against other currency positions.
🟡UK £
We are neutral. Although a global soft landing scenario would benefit sterling, concerns around stagflation remain.
🔴🔽 EU €
We are negative given that the ECB is projected to implement interest rate cuts sooner than the Federal Reserve (Fed). The currency is also under pressure following the recent declaration of a snap election in France.
🟡 CNH ¥
We remain neutral, reflecting the balance between weak economic growth and the impact of the uptick in the global goods cycle.
🟡 🔽 JPY ¥
The BoJ’s recent intervention in support of the currency has had limited impact and we see little threat to its continued weakness despite expectations of further rate hikes.
🔴Swiss franc ₣
The Swiss National Bank (SNB) was one of the first major central banks to cut rates. However, housing rents are putting upward pressure on inflation.
Source: Schroders, June 2024. The views for equities, government bonds and commodities are based on return relative to cash in local currency. The views for corporate bonds and high yield are based on credit spreads (i.e., duration-hedged). The views for currencies are relative to the US dollar, apart from the US dollar which is relative to a trade-weighted basket.
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