Mixed economic signals open up opportunities

The move up in bond yields, US stocks (record highs in October), and Europe indicate markets’ perception of a perfect scenario centered around strong US growth and falling inflation and a positive impetus from monetary easing in Europe. Although we acknowledge the resilience of US, we think not all data in the US and Europe has been straightforward. In China, the key question is whether the fiscal policy will meet expectations and deliver a sustainable boost to economy. ...

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Vincent Mortier

Vincent Mortier

Group CIO

We are slightly constructive on risks towards segments where fundamentals are strong, and ignore areas where upside potential looks limited.

Vincent Mortier, Group CIO

Explore tactical entry points and stay flexible

investment

Explore tactical entry points and stay flexible

Mildly slowing economic growth in the US, growth moving towards potential in Europe and declining inflation in both regions call for a moderately positive stance on risk. In particular, wage moderation in the Eurozone has allowed the ECB to maintain its course on rate cuts. This monetary easing, along with expectations of policy stimulus in countries such as China, led us to finetune our stance on equities. But we did so while keeping sufficient checks and balances that provide stability and diversification.

Inflation progress to keep central bank easing on track

The apparent resilience of the US economy and the recent inflation data led the markets to raise their expectations on US interest rates. There now seems to be a debate in the markets as to whether the Fed believes inflation has been beaten and will therefore continue on its rate-cutting path. While there are some tail risks to the disinflation process, the overall trajectory of inflation is declining, and the Fed, along with the ECB, is very mindful of unemployment numbers and economic activity. On the last one, we expect a mild deceleration in the US as labour markets rebalance and consumption pressures emerge. Hence, while exploring the benefits and stability of government bonds, investors may consider quality credit for extra carry, particularly in Europe, US and emerging markets.

Inflation progress to keep central bank easing on track

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Balance the ‘no-recession’ narrative in US with valuations

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Balance the ‘no-recession’ narrative in US with valuations

An environment of declining inflation and a mild US economic deceleration without a recession are constructive for equities. But it doesn’t call for an outright increase in risks because not all markets are displaying a similar earnings potential and valuations. On the former, this earnings season in Europe and US should give us some insights on forward guidance. Any disappointment could cause volatility and be an opportune backdrop for stock picking (based on balance sheet strength, potential to reward shareholders, etc.). In Asia, the measures announced by Chinese policymakers indicate their clear desire for economic support, but the details on fiscal policies to boost consumer sentiment are the most important aspects for us. As we monitor that, we explore quality businesses in other EM and in Europe and Japan.

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