Fullerton Investment Views 3Q19 – Highlights

US-China trade relations reignited downside risks for markets and economic activity in Q2. Although tensions seem to have defused again for now, the underlying threat of renewed and unexpected twists in negotiations suggest to us that risk premia in markets are likely to remain elevated. On the other hand, it is important to note that central banks have markedly shifted toward monetary policy easing. This provides strong positive offsets to the negative headwinds arising from trade uncertainty. 

Executive Summary

  • Central banks have responded to a global economic slowdown by accelerating a shift towards monetary policy easing.
  • Slowing global growth and prolonged uncertainty over US-China relations generate downside risks to an earnings recovery in equity markets; overall equity valuations are not overly compelling.
  • On a more positive note, risk appetite and positioning are not overly extended; flow dynamics and positive risk seeking sentiment could remain supportive for markets in the near term.
  • Risk premia in markets are likely to remain elevated, given the uncertainty around US-China trade relations.
  • We remain engaged in risk assets, either on a tactical basis or selectively in those assets offering better value.
  • Dovish central banks in Asia provide support to bonds. We selectively prefer duration exposure in markets with steep curves and attractive real yields.
  • We remain constructive within the credit space, as spreads still offer attractive value for credit and duration risk.

For a more in depth look at the market and risk asset fundamentals, read the full article here.