Our multi-asset investment views - July 2024
We have downgraded our view on European equities to negative due to heightened political uncertainty. Find out more about our views on a range of asset classes here.
Authors
🟢 Long / positive
🟡 Neutral
🔴 Short / negative
🔼 Up from last month
🔽 Down from last month
Main Asset Classes
🟢Equities
Positive economic data alongside our expectation that the Federal Reserve (Fed) will start to cut interest rates in the autumn means we maintain our positive view on equities.
🟡 Government bonds
We remain neutral with a preference for yield curve steepeners as a hedge against fiscal concerns in the US (yield curve steepener trades aim to benefit from an anticipated increase in the yield spread between longer-term and shorter-term bonds).
🟡Commodities
We maintain a neutral score. Markets remain balanced in energy, and whilst reasonable data continues to reinforce the manufacturing recovery, fading demand and rebounding supply in China have reduced the case for metals.
🟡Credit
We maintain our neutral score. While the liquidity and growth picture is supportive, valuations are rich and political volatility remains a concern.
Equities
🟢US
We remain positive as we anticipate that financial conditions will remain favourable throughout the summer, with the expansion of US reserves and expectations for positive earnings growth.
🟢🔼UK
We have upgraded our view to positive due to valuations reaching extreme lows. The political shift could lead to a period of stability and improved investor sentiment.
🔴🔽Europe
Equity market performance is narrow, with earnings expectations outside of mega cap stocks negative. In addition, heightened political uncertainty warrants a downgrade.
🟡Japan
While earnings revisions are picking up, the positive effect from yen weakness has waned due to rising import costs. This has dampened consumer and business sentiment, particularly among smaller companies, so we retain our neutral score.
🟢 Global Emerging Markets1
We remain positive as many emerging economies have brought inflation under control, are running prudent fiscal policy and stand to benefit from the manufacturing recovery that is currently under way.
🟡 Asia ex-Japan: China
The domestic picture is weak, and companies are struggling. We prefer other EM markets such as those in Latin America, Taiwan, and South Korea.
🟢EM Asia ex China
The improvement in global manufacturing purchasing managers' indices (PMIs) should continue to drive the export recovery, benefitting cyclical markets such as Taiwan and South Korea.
1Global Emerging Markets includes Central and Eastern Europe, Latin America, and Asia.
Government bonds
🔴 US
Valuations look fair according to our models, and the market is pricing in almost two interest rate cuts this year. While inflationary pressures are easing, consumer spending remains resilient, and we prefer to wait for a softening in the labour market before turning positive.
🟡 UK
We maintain a neutral score. Although we expect the Bank of England to cut interest rates at the August meeting given that labour data is softening, service inflation persists.
🟡 Germany
Although PMIs are weak, the European Central Bank has kept rates on hold as inflation is still above target. This, coupled with political uncertainty in France, means we prefer to stay on the sidelines for now.
🟡 Japan
Although yields look attractive, the market is pricing in two interest rate hikes by the end of the year as headline inflation is increasing.
🟢 US inflation linked bonds
While headline measures indicate a potential easing of inflation, we maintain a positive view on US inflation-linked bonds as they continue to serve as a valuable hedge against any unexpected spikes in inflation
🟡 Emerging markets local currency bonds
We maintain our neutral score. Although valuations are attractive, we prefer expressing our views through currency positions.
Investment grade credit
🟡 US
While the growth and liquidity environment is supportive, rising interest rate volatility amid political and fiscal uncertainty keep us neutral given rate sensitivity.
🟡 Europe
While valuations are less expensive than US IG, and the growth and liquidity environment is supportive, we maintain a cautious view due to political volatility in Europe.
🟡Emerging markets USD
EM corporates should benefit from strong fundamentals and technical tailwinds. However, valuations are expensive so we maintain a neutral score.
High yield bonds (non-investment grade)
🟡US
Default rates appear to have peaked, and valuations are expensive. However, similar to IG, given the supportive environment we retain our neutral score.
🟡Europe
While European high yield now offers some value and the fundamentals and technicals are supportive, political instability keeps us on the side-lines.
Commodities
🟡 Energy
We maintain our neutral score as we expect oil markets to remain rangebound. Demand growth appears to have stalled, while the supply side appears benign with plentiful spare capacity from OPEC offset by moderating US supply.
🟢 Gold
Technical factors remain supportive for gold, which leads us to retain a positive score.
🟡Industrial metals
Although the manufacturing recovery remains supportive, fading demand in China for green energy has led to an inventory build-up.
🟡Agriculture
We stay neutral. Latest data has revealed that supply is very healthy for several key grains, as the prospect of La Niña impacting conditions has been pushed out.
Currencies
🟡🔽US $
We have downgraded the dollar. Our expectation is that the Fed will start to cut interest rates and there is a reduction in the probability of a “no landing” scenario.
🟢🔼UK £
We have upgraded sterling to positive. Following a lengthy period of turbulence in the UK, the pound should now benefit from political stability and improved sentiment.
🔴 EU €
While the currency has rebounded from the lows following the snap election decision in France, political uncertainty ahead of the regional German election is not yet priced.
🟡 CNH ¥
While there has been an uptick in the global goods cycle, weak economic growth leaves us neutral.
🟡 JPY ¥
We remain neutral. The Bank of Japan’s intervention has had limited success in supporting the currency. Despite the expectation of further rate hikes, currency weakness will remain.
🔴Swiss franc ₣
The SNB’s recent rate cuts and dovish rhetoric aim to prevent franc strength. Domestic inflation has returned to target levels and foreign FX reserves have increased.
Source: Schroders, July 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.
Authors
Tematy