BNP PARIBAS ASSET MANAGEMENT - Finance 4 1440x300
Analyse de l'allocation d'actifs, Investment strategy, Market commentary

Asset allocation quarterly – July 2018

July 11, 2018 - Christophe MOULIN, Guillermo FELICES, Colin HARTE, Maxime DAVID

Foreseeing calmer markets over the next few months, we have identified several reversal themes

SUMMARY: The second quarter of 2018 was tainted by trade tensions; investor concerns about Italy and European growth; and stress in emerging market (EM) and China-linked assets. However, not all news was bad for the markets: US equities and crude oil outperformed other risky assets and credit markets outside of the eurozone ‘periphery’ and EM have been generally stable

We foresee calmer markets over the next few months and have identified these reversal themes:

  • (i) The crude oil market has likely seen a top already as it has priced in plenty of good news on demand, supply and geopolitics.
  • (ii) Relative monetary policy divergence between the US Federal Reserve and the ECB is also largely priced in. We therefore expect the USD to stabilise against the EUR and the spread between US Treasury (UST) and German bond yields to tighten.
  • (iii) More stable US rates markets and a stable USD should support EM currencies and therefore EM local debt

The hallmark of Q2 has been the progressive economic divergence between the US and the rest of the world. This has been fuelled by several key elements.

In the US, stimulus from the tax cut boosted economic activity and consumer confidence. This positive development could have benefited the global economy and financial markets. However, President Trump’s protectionist agenda got on the way.

The implementation of several import tariffs alongside aggressive rhetoric on trade unsettled investors and accentuated the divergence by hurting export-oriented economies such as emerging markets and developed countries such as Germany.

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BNP PARIBAS ASSET MANAGEMENT - Finance 4 1440x300
October 10, 2018

So far so good, but markets underestimate risks

BNP PARIBAS ASSET MANAGEMENT - Finance 1 1440x300
September 10, 2018

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.

BNP PARIBAS ASSET MANAGEMENT - Finance 1 1440x300
June 27, 2018

SUMMARY: Despite trade tensions, concerns about global growth and more volatile markets than in 2017, our base case scenario remains one of robust global growth and contained inflation. This underpins our bullish view on equities, with a preference for eurozone equities where we see positive earnings growth prospects and room for margin expansion

Asset allocation flash – 25 June 2018

SUMMARY: Despite trade tensions, concerns about global growth and more volatile markets than in 2017, our base case scenario remains one of robust global growth and contained inflation. This underpins our bullish view on equities, with a preference for eurozone equities where we see positive earnings growth prospects and room for margin expansion

Asset allocation – September 2018

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.