2Q19 Global Asset Allocation Views
- Recession risk is muted and high frequency data are beginning to trough. Even then, we expect slightly subtrend global growth in 2019, and although the capex cycle should come off its recent lows we do not see the kind of rebound we enjoyed in 2016. Easier U.S. policy is a boost, but eventually we expect a further one to two rate hikes.
- We retain our mild underweight to stocks and prefer to add risk, at the margin, in carry assets like credit. We see equity supported by subdued earnings expectations and easy policy, but in today’s mature, late-cycle environment we don’t see many catalysts for strong upside to earnings. We also expect trade concerns to linger.
- U.S. stocks are our most preferred region and Europe our least preferred; we are warming up to emerging market stocks where potential for a softer dollar lends support. Given slower growth and more dovish U.S. policy, we maintain our overweight to duration and take cash back to neutral. On balance, our portfolio allocation reflects an environment that supports carry a little more than capital growth.
KEY THEMES AND THEIR IMPLICATIONS
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