Investment Perspectives, July 2018

In this mid-year publication, we review our January expectations and analyse some current key economic indicators before outlining the asset allocation that we recommend for the second half of the year.

Our early-year portfolio positioning was cautious

Our portfolio positioning at the beginning of 2018 was somewhat cautious, with an above-average level of cash and a modest overweight exposure to the equity asset class. We contended that 2018 would be a more challenging year for equities and this has greatly proven to be the case. Our expectation that bond yields would gradually rise has been vindicated in the case of U.S.Treasuries, but not for core European bonds.

We refrained from deploying any cash towards equities during the spectacular January rally as we felt that markets had become overbought and investors too bullish. With traditional assets struggling to produce positive returns in the current unstable market conditions,the role of alternative strategies has taken on more importance, as a source of uncorrelated performance and to strengthen the resilience of portfolios.

Global growth has levelled off, in Europe in particular

Global growth has eased during the first half but still Global growth has eased during the first half but still remains solid. The widely expected extension of the broad and strong global economic trends observed throughout 2017 has not quite materialized as manufacturing and trade growth have shown some signs of moderation. A slowdown of economic growth has taken place in Europe, in Japan and even in the United States. The combination of financial market stress,escalating trade tensions and political issues has dented elevated levels of optimism and clouded the economic outlook. Compared to 2017, the radical agenda of Donald Trump is proving to be increasingly disruptive. Looking ahead, the U.S. economy is picking up steam thanks to a strong job market, robust consumer spending and the help of tax reform. In contrast, the Euro zone will be hoping for an improvement on its first half performance;a weaker euro should provide some help for exports, especially if the global trade dispute were to be resolved quickly in a positive manner.

 

CONTENTS

  • EXECUTIVE SUMMARY
  • THE MACRO ENVIRONMENT
  • FINANCIAL CONDITIONS
  • FINANCIAL MARKETS
  • MARKETS’ OUTLOOK
  • ASSET ALLOCATION 2nd HALF 2018

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Tags: Investment outlook