Investment outlook 2H20 6 macro themes to guide investing in 2H20

The pandemic-induced global recession is over. We list six macroeconomic themes that will shape markets and provide attractive risk-adjusted opportunities.

11 Jun 2020

Investment outlook 2H20

At a glance

  • The pandemic-induced global recession is over. The nascent recovery is likely to look V-shaped at first, but that pace of improvement is unlikely to be sustained.
  • The magnitude of the rebound in risk assets leaves us neutral on global equities, with a preference for relative value trades over large directional exposure. Six major macroeconomic themes guide our recommended asset allocation going forward.
  • In an uncertain macroeconomic backdrop, we embrace inexpensive expressions of the pro-cyclical trades that we believe have the most room to run in an enduring economic recovery. We are also maintaining defensive positions to protect against left-tail outcomes.
  • We are cautious on US equities. In our view, more value can be found in non-US equities.

Investment outlook 2H20

6 macro themes to guide investing in 2H20

Our cross-asset positioning is guided by six macroeconomic themes we see shaping the financial market landscape over the coming quarters and providing opportunities for attractive risk-adjusted returns.

Investment outlook 2H20

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Our concerns about the likely lack of vigor in the economic rebound and potential for its derailment inform our desire to limit overall beta and retain flexibility to adjust positioning to evolving policy and public health conditions. The incremental progress in activity key to the resilience of risk assets will inevitably be challenged in the weeks ahead.

How else can investors steer their portfolios as we embrace a socially-distant early cycle?

Investment outlook 2H20

Investment opportunities to increase exposure to early-cycle themes

We see the end of the pandemic-induced global recession as a backdrop rich in attractive opportunities to increase exposure to early-cycle themes. Our focus is on relative value positions, as unbridled enthusiasm about the fruits borne of this early cycle environment needs to be curbed in light of the fundamental forces that warrant a more balanced approach to asset allocation.

Science holds the key to the broadest possible return to pre-pandemic patterns of spending. Uncertainty on the nature of the recovery therefore remains elevated, with little visibility into how quickly a complete rebound can be attained. An immense amount of economic damage is yet to be repaired, and may even swell in the event of a policy error or second wave of the virus. And most importantly for financial markets, substantial progress is required to justify the expectations embedded in some risk assets, particularly US equities.

In the current environment, flexibility remains a chief consideration to capture more opportunities as they present themselves. Protective safeguards should also be kept in place to shield investors. Challenges to the burgeoning growth outlook will inevitably appear, fostering short-term volatility and perhaps threatening to undermine this longer-term journey back to full economic health.

Investment outlook 2H20

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 9 June 2020.

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