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Investment Views

October 2017

Preparing for Transition

Multi-Asset: We believe investors should remain constructive on risk assets, equities in particular, as the positive macroeconomic backdrop is still translating into solid earnings growth. We still selectively see value in EMs, where we favour a country-specific approach (South Korea, China, Russia), Europe and Japan. In fixed income, we believe investors should prefer credit to core govies, keeping a focus on inflation-linked securities. As we believe that 2018 will be the year of transition into a late cycle phase, we suggest that multi-asset investors should play this transition phase with hedges and an even more cautious approach on credit, while maintaining a negative stance on duration.

 

Fixed Income: Credit markets remain our favourite area in fixed income. In a world of tight credit spreads, investors should give priority to quality of issuers and security selection to capture alpha opportunities. In core govies, a short duration approach should be considered to mitigate the risk of rising rates. EM bonds remain more and more a carry trade story. In EMs, we see pockets of value in Russia and Brazil, which are experiencing improved macro conditions.

 

Equities: We believe that global equities continue to be supported by sound corporate earnings growth. However, the equity bull market is extended, and markets are priced for perfection. As valuations are getting rich, especially in DMs, stock picking, in our view, will become even more relevant, with a focus on companies able to translate top-line growth (sales) into profits, as well as a rebalancing between cyclicals and more defensive stories.

 

Real Assets: As the need for a transition, from a cyclical to a more structural and inclusive recovery, will be at the forefront for policymakers in the years to come, we believe that infrastructure investing may be an interesting way to diversify risk and enhance returns. As the demand for infrastructure investing is very high, the case for selection is key with regard to uncovering investment opportunities at reasonable price.

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