- Global growth converging towards trend – slowdown to persist in 2020, but US growth should outperform Europe and Japan.
- Central bank policy to remain easy – the room for further easing looks limited in Europe and Japan, but there is more scope in the US and China if needed.
- Fiscal policy could be a game changer – US and Chinese policies are already expansionary, but the hurdles for European fiscal stimulus are high.
Key themes & risks
- ‘Fragile goldilocks’ holds – data are stabilising, central bank policy is loose, and short-term de-globalisation dynamics are supporting risky assets.
- Beware the risks – after a strong 2019, our base case is vulnerable to a more entrenched ‘synchronised slowdown’ or a sustained ‘reflation’ environment.
- Fixed income is most at risk – we see fixed income markets as being most at risk from a sustained move to reflation.
- Modus operandi: nimble & diversifying – strategic risk/reward is unattractive as our base case is also vulnerable to tail risks/end-cycle dynamics. We see merit in a nimble approach and in building robust portfolios/diversifying.
- Overweight equities – in the latest dip, we added overweight positions in equities again, and aim to remain nimble.
- Underweight core EMU duration – we aim to be nimble and have reduced our short exposure given yield moves. But risks from reflation remain large for rates.
- Search for yield – we still believe in searching for yield. We are maintaining a high-carry EM external debt position and an EMU REITs trade.
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