BNP PARIBAS ASSET MANAGEMENT - Finance 1 1440x300
Analyse de l'allocation d'actifs, Investment strategy, Market commentary

Asset allocation – February 2018

February 13, 2018 - Guillermo Felices, Head of Research and Strategy & Colin Harte, Head of Research - MAQS

SUMMARY: Global equities sold off aggressively as higher bond yields finally dented the strong January risk rally / The sell-off was triggered by strong hourly earnings data in the US, but its magnitude appears to be exacerbated by market technicals / Solid growth fundamentals and limited contagion from the equity volatility to other markets such as rates, currencies and emerging markets (EM) are consistent with a technical dislocation in markets

2018 began on a very strong footing as financial markets priced in a reflation environment with both risky assets and bond yields rising for most of January. Most major equity markets started correcting in late January, but it was not until Friday 2 February that the correction in risky assets deepened. This followed an upside surprise in the latest date on average hourly earnings in the US , which rose to 2.9% YoY , beating consensus estimates of 2.6%.
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SUMMARY: US equities continued to outperform other markets such as EMU and EM equities. This partly reflects the divergence between the US economy -which is supported by fiscal expansion and a patient Federal Reserve- and relatively weaker growth in the eurozone and EM. But there is more to this divergence than faster US economic growth. The US equity rally has been led by the IT sector. This has accounted for 20%-50% of US equity returns since 2016. The rally is now looking stretched on various metrics. The other salient development in August was renewed stress in emerging markets (EM). A combination of economic stress in Turkey, weaker growth in China, Sino-US trade tensions and a stronger US dollar hurt EM assets. We believe there is value in EM assets, but the obvious circuit-breakers are still absent: a weaker USD, aggressive China stimulus and fresh Sino-US trade talks. EM assets prospects have soured and protectionism and tighter liquidity continue to cloud their longer-term prospects.

Asset Allocation Quarterly

So far so good, but markets underestimate risks