European investment manager Amundi says that economic growth is moderating but not collapsing across the developed world and inflation is falling in line with central banks’ targets, indicating that the central bank put is firmly in place.
“As a result, we are mildly positive on risks and aim to ensure that all elements for enhancing long term returns, and portfolio resilience (hedges and duration) are well-explored. On the latter, we are diversified across the curves and actively adjust this stance to accommodate regional nuances, taking into account opposing pressures (falling inflation, growth, fiscal deficits) on yields,” says Francesco Sandrini, Amundi head of multi-asset strategies.
“Our slightly constructive view on developed markets (DM) equities is maintained through the UK and Japan, but we are neutral on the US and the EU. The UK provides a good balance of domestic and international dynamics, and high dividends. Its exposure to the energy sector could provide some support in times of heightened tensions in the Middle East.
“In Asia, Japan could benefit from improvements in corporate governance and is also a diversification play. Overall, we are exploring other developed and emerging markets (EM) which provide a good balance of valuations, volatility and potential rewards.
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“We are positive on US duration and core Europe but have partly reduced our views on the latter in favour of the UK. The UK should benefit from slowing inflation and fiscal discipline, and Italian BTPs also present room for further gains. Given the movements in the Canadian curve over past months, we believe the scope for the curve to steepen further is limited. But in the medium term, yield curves in major DM (i.e. the US) should steepen.
“In Japan, the BoJ’s policies are likely to keep bonds under pressure. In corporate credit, EU IG is attractive and shows strong fundamentals and low leverage. Furthermore, EM debt maintains its yield advantage over US, particularly in local currency. We remain constructive on EM debt but have reduced this view slightly. In some parts, tight valuations could come under pressure from any possibility of a Trump victory (protectionism) in the US. We are marginally positive on USD but are vigilant as it might be affected by Fed rate cuts.
“The AUD is attractively priced and could benefit from any improvement in China growth. In EM, we like BRL/EUR and INR/CNH. Gold has benefitted from Fed easing and it continues to provide strong protection from geopolitical tensions. But to further strengthen portfolio safeguards, it is important to explore hedges on bonds and equities over the next 12 months.”
