Our Key Investment Strategy Highlights - Q3

A pickup in the global business cycle is postponed

The global economy remains in a trade-induced slowdown, with signs of recovery still elusive. Manufacturing and trade-related sectors are suffering, with the most acute damage observed in foreign companies based in China. Other Asian and emerging economies, especially those integrated in Chinese supply chains, are also feeling the pain.

Key highlights

• Given still depressed global trade, growth in most major economies is likely to slow during the coming months – prompting easier monetary policies (although their impact may prove limited).
• We expect the Fed to proceed with a first round of two rate cuts, given subdued inflation, the fading impact of Trump tax policy and uncertainty regarding a trade agreement.
• In Europe, the ECB will also seek to provide stimulus in response to persistent risks and falling inflation expectations, although we are sceptical about its effectiveness.
• The celebratory tone of the imperial succession appears to have bolstered Japanese domestic consumption – somewhat offsetting external pressures on the industrial sector.
• Emerging economies’ dependence to Chinese growth is high and US dollar appreciation would also be harmful, making escalation of the trade dispute the key risk.
• During the past quarter, we took an additional defensive step in our asset allocation, reducing equities (in May) and upping our exposure to safe havens (gold and government bonds).
• In Forex, we confirm our long yen position and will be looking for opportunities to gain overweight exposure to emerging currencies – in this context of persistently low yields

Read the full report here.