16MAR 2023
Current views - October 2019
Our investment team assesses the prospects for a range of asset classes and currencies
18/10/2019
Key
Asset classes
Equities
Valuations are above long-term averages but central banks’ actions continue to be supportive.
Bonds
Valuations have become expensive with negative bond yields prevalent in Europe. We prefer USD bonds to EUR and GBP bonds. We prefer credit to government bonds. We are maintaining a short duration bias.
Alternatives
Attractive diversification characteristics compared to equities and bonds. We favour gold as global central banks ease policy. We remain cautious on UK commercial property.
Cash
Cash has defensive and opportunistic qualities in uncertain and volatile markets.
Equities
UK
Brexit uncertainty continues to weigh on market sentiment.
European
Weaker economic data and the uncertainty around trade tensions continue to be a headwind, offset by bolder easing measures by the European Central Bank.
North American
Economic fundamentals are relatively attractive vs. rest of the world and earnings growth expectations have moderated.
Japanese
Concern about trade tensions and the impact of the consumption tax hike.
Asia and Emerging markets
Valuations and fundamentals look attractive relative to developed markets. Slowing Chinese growth and trade tensions remains a headwind, but Chinese stimulus should be supportive.
Bonds
Government bonds
US Treasuries are relatively more attractive given a more supportive Federal Reserve.
Investment grade
Returns are likely to be driven largely by government bond markets. While corporate spreads are close to post 2009 averages, we are mindful of increasing company leverage and the late stage of the economic cycle.
High-yield
Volatility will likely continue and will offer opportunities if spreads move sufficiently in either direction.
Inflation-linked
While we prefer linkers to conventional bonds, oil prices have fallen which has lowered inflation expectations. UK linkers are attractive as a Brexit hedge but the risk of an imminent no-deal Brexit has decreased.
Emerging markets
Emerging market bonds generally offer good value.
Alternatives
Absolute return
We like the diversification characteristics of trend followers and long/short strategies.
Commercial property (UK)
Ongoing concern for the UK commercial property environment, but income characteristics remain attractive.
Commodities
Gold is attractive as a diversifier, portfolio insurance and an inflation hedge.
Structured products
Offer attractive returns but we acknowledge the shorter-term correlation with equities.
Author
Investment Team
This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.
