5 themes that should be on investors’ radars
- Global growth steadies above trend
- Higher volatility
- Moderately higher bond yields and inflation
- Geopolitics and protectionism
- The monetary policy balancing act
How can investors access each theme?
1. Global growth steadies above trend
- The global growth impulse has moderated and become less synchronized internationally
- But the overall demand backdrop remains resilient
- Low probability that global demand will decelerate sharply in the coming year
- Recent China stimulus is likely to cushion domestic demand and support wider emerging market growth
2. Higher volatility
- Moderate increase in the volatility
- The partial reversal of the Fed’s Quantitative Easing program is also likely to result in a modest increase in overall volatility regime for asset classes globally
- A stronger USD plus divergent growth paths among major economic areas could also threaten higher volatility
3. Moderately higher bond yields and inflation
- Reduction in globalization, higher trade tariffs, rising oil price are likely to push consumer prices higher globally
- Core inflation and G10 nominal government bond yields edging higher
- Upside in both inflation and yield likely to be constrained by structural forces including ageing populations, technology advancements and rise of e-commerce
4. Geopolitics and protectionism
- Rise of populism in developed markets (DM) is unlikely to be a short-term development and raises the geopolitical risk premium across asset classes
- Shift from austerity to fiscal stimulus in DM likely to broaden and could help sustain demand cycle
- Idiosyncratic political risk and exposure to DM protectionism also remain key features of the emerging markets backdrop
5. The monetary policy balancing act
- Contrast between the strength of the US economy and the rest of the developed world has grown starker in recent months
- The US Federal Reserve is alone among G3 central banks in pursuing a meaningful policy tightening regime
- The decoupling of monetary policy is creating opportunities across asset classes
Asset class attractiveness
The chart below shows the views of our Asset Allocation team on overall asset class attractiveness, as well as the relative attractiveness within equities, fixed income and currencies, as of September 30, 2018.
What are the key trades within each asset class?
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