“Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.”
Benjamin Franklin
Macro Environment
- Inflation pressure in developed markets is picking up slightly
- European recovery looses momentum
- US sentiment & confidence remain intact
- Emerging markets growth remains robust while confidence numbers are falling
Outlook and Markets
- Valuations remain stretched
- Trade frictions between the US and China, increase and threaten to escalate further
- Fed still on track to tighten further but might be forced to change stance due to trade frictions
Main Investment Calls
- Remain cautious and keep a neutral position of the return and income portion in the model portfolio
- Maintain an overweight in Cash
- Equities over Sovereign Bonds
- Emerging over Developed Equities
- EMD and Investment Grade Credit over Sovereign Bonds
- TIPS as an (unexpected) inflation hedge
Main Risks
- Full scale trade war between the US and China escalating also on a political level
- Higher than expected inflation in the US, coupled with substantially increased spending leads to more than the expected rate hikes by the Fed and choke off economic momentum, leading to a possible recession
- Budget dispute between Italy and the EU escalates further and morphs into a Euro Crisis 2.0
- Risks of policy missteps as China continues the attempt to rebalance its economy to a more domestically supported one and impose too strict regulatory frameworks on banks
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