The sustainable investor for a changing world

The rate of worldwide GDP growth may be starting to normalise, but economic and policy crosscurrents are muddying the post-pandemic recovery. Among the top worries: Inflation expectations related to supply-chain snarls; a new Covid variant and possible spill-over effects from slower growth in China, the world’s second largest economy.  

This is a shortened version of our monthly Asset Allocation Outlook.

We see the inflation spike as temporary and believe rising vaccination rates should allow economies to continue to reopen, assuming the Omicron variant does not turn out to be resistant to existing vaccines.

The growth deceleration in China will likely remain manageable as Beijing gradually shifts towards (more) policy easing. Major developed countries’ fiscal stimulus should boost global growth.

The normalisation of central bank policy will likely also proceed gradually.

We believe that overall, this backdrop continues to favour risk assets (equities) over safe-haven instruments (bonds) as long as real yields remain low.

Asset allocation

We are long equities. Reflecting the expectation of a recovery in emerging market equities, we have added a long position in global EM equities and reduced our long US equities position.

We have reduced European small caps in favour of North American small caps and European large caps. The latter should have more ‘legs’ than other large-cap stocks. We have kept our long Japanese equities position.

We believe the prospect of higher yields makes US Treasuries look precarious, so we have added to our tactical short position in 10-year Treasuries.

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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