“The one unchangeable certainty is that nothing is unchangeable or certain.”
John Fitzgerald Kennedy
Macro Environment
- No significant inflation pressure in developed markets
- European growth loses momentum
- US consumer confidence remains intact while capital markets focus on international trade woes
- Emerging markets growth slows down somewhat in light of increasing trade tensions
Outlook and Markets
- Valuations remain stretched in a lot of markets
- Trade frictions between the US and China continue to be a major market mover
- Fed remains on hold but two rate cuts are expected this year as US growth is slowing
Main Investment Calls
- Stay cautious and move to a neutral stance between the income and the return part of the portfolio
- Maintain a slight overweight in Cash
- Equities over Sovereign Bonds
- Reduce overweight in Emerging vs Developed Equities
- EMD and Investment Grade Credit over Sovereign Bonds
- Reduce overweight in TIPS slightly
Main Risks
- Full scale trade war between the US and China escalating further also on a political level
- Higher than expected inflation in the US, coupled with substantially increased spending leads to the Fed needing to restart hiking rates, thus choking off economic momentum, leading to a possible recession
- Unexpected fallout from a chaotic Brexit in October could lead to another Euro crisis and put global growth at risk
- Risks of policy missteps as China continues the attempt to re-balance its economy to a more domestically supported one and impose too strict regulatory frameworks on banks
- Further escalation of the Iran-US conflict, sending oil prices substantially higher, leading to higher inflation rates and more pronounced recessionary tendencies
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