Our multi-asset investment views for August 2018

Positive

Positive/ neutral

Neutral

Neutral/ negative

Negative

Up from last month

No change

Down from last month

Equities

Equities are still vulnerable to rising yields and changing sentiment in the near-term despite strong earnings momentum.

Government bonds

Whilst the rise in yields leaves government bonds looking attractive relative to recent history, we believe a further rise is required to catch up with the improved backdrop.

Commodities

Although price momentum remains positive, it has deteriorated in recent weeks and carry is now flat. We have downgraded commodities back to a single positive.

Corporate bonds

Spreads have tightened recently across regions and credit quality tiers, and leverage is rising, making credit unattractive.

US

Strong earnings results continue to provide support for equities. In addition, US equities also appear to be boosted by a reacceleration of share buybacks.

Europe

We continue to be cautious about eurozone equities, taking into account global trade tensions and tightening financial conditions.

UK

Political division around Brexit and higher risks of a no-deal scenario detract from UK equities’ appeal.

Japan

Valuations are attractive, but weakness in macroeconomic data and cyclical indicators point to a slowdown, which keep us neutral.

Pacific ex-Japan

Attractive valuations are offset by momentum indicators for China and Singapore having declined sharply in past couple of months.

Emerging markets

We are comfortable that economic fundamentals are still intact and that we are over the worst of the sharp losses suffered in recent months.

US

Treasuries continue to look rich against a backdrop of negative term premium, an upcoming large supply increase and higher hedged yields available overseas.

UK

Valuations remain expensive, but uncertainties around Brexit may delay further rate hikes by the Bank of England.

Germany

While weaker growth has been priced, inflation risks have not. The European Central Bank remains reluctant to hike too early, but isn’t as dovish as the market wants to believe.

Japan

The Bank of Japan’s recent changes to QE will allow it to maintain easy monetary policy for longer. So, whilst the direction of travel is clear, the pace appears slow.

US inflation linked

We remain positive on US inflation. While seasonal effects will turn negative, our latest research suggests that stagflationary fears will trump this technical factor.

Emerging markets (in local currency)

We remain neutral as cyclical headwinds prevent us from taking advantage of the improvement in local market valuations.

US IG corporate bonds

Both merger and acquisitions (M&A) activity and leverage continue to increase. We remain negative.

European IG corporate bonds

European corporates are in a stronger position, though the recent pickup in M&A and shareholder activism is potentially indicative of a maturing cycle in the region.

Emerging markets USD

We believe that the regional mix and positive earnings growth marginally favours EM corporates over sovereigns.

US

The best performing market year-to-date. From a valuation perspective, we believe it is expensive and vulnerable, with technicals in particular unlikely to be as favourable in H2.

Europe

Political instability in the region continues to linger and is likely to cap spread tightening, hence we retain our negative view.

Energy

Price momentum has deteriorated but oil prices should still be supported by robust global demand and the potential for political tensions in the Middle East.

Gold

We remain neutral on gold. The relationship between gold and interest rates has now normalised but a stronger USD is a threat to the gold price.

Industrial metals

Industrial metals have fallen sharply in recent weeks. We believe this is overdone given that the cyclical environment remains attractive. We remain positive.

Agriculture

The recent correction relates to trade war concerns rather than fundamentals, so we remain positive.

US dollar

The dollar continues to push higher, fuelled by economic outperformance vs. the rest of the world, even as it has reached expensive levels.

UK sterling

More reasonable economic fundamentals and a more assertive Bank of England are being ignored as “hard Brexit” risks are building.

Euro

We have been disappointed by continued weakness in European fundamentals, compounded by a resurgence in Italian political risk.

Weaker signs of synchronised global reflation makes us more positive on the yen, but we await more concrete signs of the Bank of Japan relaxing Yield Curve Control.

The Swiss franc is benefiting from greater European political uncertainty, but should be offset by the Swiss National Bank’s continued dovishness.