22 May 2017
The Weekly Strategy Report (22 May 2017)Contributor Multi-Asset Solutions
- Weaker commodity prices, a policy of central bank tightening and some faltering economic momentum in the second quarter have markets concerned that China could be the source of a negative impulse to the global economy.
- We believe that strong first quarter economic growth and improving bank asset quality gave China’s authorities the confidence to step up their efforts to reform the financial system. Tightening measures particularly target those lenders that either rely on interbank funding or do not meet more stringent macroprudential assessments. We believe the tightening is not designed to materially slow the overall economy.
- In our multi-asset portfolios, we have followed a geographically diversified approach to our equity positions this year, but have held back on Europe in the face of political risks. As these fade for now as performance drivers, we have recently added more exposure to Europe. We view this position within the context of a broad regional diversification rather than a bet on outsized European outperformance.
- Financial stability is China’s primary objective for 2017. We do not expect that the authorities will allow growth momentum to weaken materially. We remain overweight emerging market equities as part of a broadly pro-risk asset allocation.
EXHIBIT 1: IN 2017, CHINESE EQUITIES HAVE OUTPERFORMED GLOBAL BENCHMARKS DESPITE HIGHER INTERBANK RATES AND FALLING IRON ORE PRICES
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