“Price is what you pay. Value is what you get.”
Warren Buffett
Macro Environment
- Inflation pressure in developed markets is picking up slightly
- European recovery maintains momentum – Italian elections could add to political turmoil again
- US sentiment & confidence remain robust while hard data is catching up
- Emerging markets show no signs of growth weakening
Outlook and Markets
- Risks for equity markets increases further as valuations become even more stretched, especially in the US
- Investor complacency is manifesting itself in historically low volatility
- Fed still on track to tighten further and might be forced to step in more resolute
- ECB and BoE continue to change wording to prepare markets for an exit of their loose monetary stance
- Productivity growth continues to be located in emerging markets rather than in developed economies
Main Investment Calls
- Remain cautious and keep a neutral position of the return and income portion in the model portfolio
- Increase cash allocation to neutral
- Equities over Sovereign Bonds
- Emerging over Developed Equities
- EMD and Investment Grade Credit over Sovereign Bonds
- TIPS as an (unexpected) inflation hedge
Main Risks
- Global trade war initiated by erratic and extreme protectionist measures by the Trump administration
- Risks of missteps as China continues the attempt to rebalance its economy
from an unsustainable export-orientedone to a more domestically
supported one and impose too strict regulatory frameworks on banks - Higher than expected inflation in the US, coupled with substantially increased
spending lead to more than theexpected rate hikes by the Fed and choke
of economic momentum, leading to a possible recession - The global economy is “driving without a spare tire” ahead of the next recession,
whenever it happens, as mostcentral banks are not far removed from the
zero lower bound - The potential for the long-held geopolitical equilibria in the Korean Peninsula and Middle East to be shaken up
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