Economics

Our multi-asset investment views for July 2018

Each month we round-up our views on a wide range of investment types from around the world. Here's what's changed this month.

27 July 2018

Multi-Asset Investments

KEY

Asset classes

 
 

Equities

Our analysis suggests equity valuations are fair compared to long-term history but look more expensive versus recent history.

 

Government bonds

We remain negative on government bonds. Valuations are still slightly expensive and we see risks that could cause prices to fall, but we are wary of downgrading further during the summer lull.

 
 

Commodities

We have upgraded commodities this month after the recent correction as economic indicators have stabilised and should be supportive.

 

Corporate bonds

A sharp deterioration in sentiment and rising US interest rates has created an unfriendly backdrop for corporate bonds.

 

Equities

 
 

US

The US continues to be the most resilient economy, in our view, and we expect to see strong earnings growth continue.

 

Europe

Despite attractive valuations and a weaker euro, headwinds such as concerns around global trade and the removal of quantitative easing (QE) remain.

 

UK

Uncertainties around ongoing Brexit negotiations continue to weigh on UK equity growth potential.

 

Japan

We remain neutral on Japan as recent weakness in macroeconomic data points to a slowdown. Further yen strengthening would be a risk.

 

Pacific ex-Japan

Within the region, we have removed our positive bias for Singapore following some unexpected recently-announced measures to cool the property market.

 

Emerging markets

Valuations are attractive compared to developed markets, though trade war escalation and a stronger dollar may be a drag in the near-term.

 

Government bonds

 
 

US

US government bonds (known as Treasuries) are still expensive considering the large increase in supply and that higher yields are available in Europe.

 

UK

We remain negative. We see UK government bonds (known as gilts) are still expensive after recent outperformance.

 
 

Germany

The European Central Bank reaffirmed its intention to end its bond-buying programme this year, removing significant support for German government bonds (known as Bunds).

 

Japan

Although bond yields are low and investors expect the Bank of Japan to eventually reduce/remove economic stimulus, it’s too early for us to downgrade.

 

US inflation linked

We are currently positive on US inflation but are considering taking profits as there may be some short-term seasonal factors which have a negative effect (such factors can include weather or cultural events).

 

Emerging markets (in local currency)

No change for now, but valuation improvements point towards a possible upgrade if the economic backdrop improves.

 

Investment grade (IG) corporate bonds

 
 

US IG corporate bonds

Debt is rising again in the US in spite of very strong profits. There is increasing pressure on management to prioritise shareholders over holders of corporate bonds.

 

European IG corporate bonds

European companies are in a stronger positon, though the recent pickup in mergers and acquisitions shows we might be getting to a late stage of the economic cycle. An economic slowdown tends to be negative for corporate bonds.

 

Emerging markets USD

We slightly favour corporate bonds from emerging markets over government bonds from emerging markets.

 

High yield (non investment grade) bonds

 
 

US

Demand remains strong, supported by a robust domestic economy in the US. But from a valuation perspective, we believe the sector is expensive and vulnerable.

 
 

Europe

Political flare-ups in the eurozone could prove a hindrance to the sector, hence we downgrade.

 

Commodities

 
 

Energy

Oil supplies remain tight amid robust global demand, while falling Venezuelan output and Iranian sanctions continue to offer support.

 
 

Gold

We have upgraded gold as the price recently corrected and the interest rate environment should be supportive.

 

Industrial metals

We remain positive on industrial metals, which are more attractive after the recent losses as the economic environment stabilises.

 

Agriculture

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

 

Currencies

 
 

US dollar

Strong US growth and political risks have fuelled the recent dollar rally, pushing the US dollar to near-expensive levels again.

 

UK sterling

Internal turmoil for the UK government keeps us negative, even as data has improved.

 

Euro

European political risks and the soft patch in eurozone economic data in the first half of the year have been mostly priced in.

 

Japanese yen

We see the yen continuing to stabilise as the Japanese economy improves and the Bank of Japan reduces bond purchases.

 

Swiss franc

We stay neutral on the Swiss franc.

 

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