1. Market Perspective
- Global economic growth to remain strong through the back half of the year, albeit off peak levels, as monetary and fiscal policy support moderates from crisis-level highs.
- Longer-term interest rates likely challenged to move higher as growth moderates, inflation softens from recent peaks and Federal Reserve moves closer to tapering asset purchases, while short-term rates could begin to price in tighter policy leading to a flattening yield curve.
- While still supportive, global monetary policy should continue to see a gradual trend towards tightening among central banks, notably within emerging markets (EM), facing rising inflation.
- Key risks to global markets include the path forward for the coronavirus, elevated inflation, central bank missteps, higher taxes, stricter regulatory environment and increasing geopolitical concerns.
2. Portfolio Positioning
- We remain modestly underweight equities relative to bonds and cash as the risk/reward profile looks less compelling for equities and could be vulnerable to fading policy support, increased rate volatility, high inflation levels and potential tax increases.
- Within equities, we continue to favour value‑oriented equities globally, US small-caps and EM stocks as we expect cyclically exposed companies to continue to benefit from strong economic growth and global reopening.
- Within fixed income, we continue to have a bias towards shorter‑duration, higher‑yielding and inflation-sensitive sectors through overweights to high yield bonds, emerging market local currency debt and corporates and inflation-linked gilts.
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