“If your opponent is of choleric temper, seek to irritate him. Pretend to
be weak, that he may grow arrogant.”
Sun Tzu, The Art of War
Macro Environment
- No significant inflation pressure in developed market
- European growth loses further momentum
- US consumer confidence remains intact while capital markets focus on international trade woes
- Emerging markets growth slows down somewhat in light of increasing trade tensions
Outlook and Markets
- Valuations remain stretched in a lot of markets
- Trade frictions between the US and China and Tweets continue to be a major market mover
- Fed remains under (mostly political) pressure to cut rates substantially. 1-2 more rate cuts in the coming months are in the cards
Main Investment Calls
- Stay cautious and maintain a neutral stance between the income and the return part of the portfolio
- Maintain a slight overweight in Cash
- Move to an overweight in Sovereign Bonds as recession risks increase
- Maintain slight overweight in Emerging vs Developed Equities
- EMD and Investment Grade Credit over Sovereign Bonds
Main Risks
- Full scale trade war between the US and China, escalating further also on a political level
- Higher than expected inflation in the US due to higher import tariffs, coupled with substantially increased spending leads to the Fed needing to restart hiking rates, thus choking off economic momentum, leading to an earlier and deeper recession
- Unexpected fallout from a chaotic Brexit in October could lead to another Euro crisis and put global growth at risk
- Risks of policy missteps as China continues the attempt to rebalance its economy to a more domestically supported one and impose too strict regulatory frameworks on banks
- Further escalation of the Iran-US conflict, sending oil prices substantially higher, leading to higher inflation rates and more pronounced recessionary tendencies
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