Executive summary
- In the first quarter of 2021, very strong global equity returns slowed a bit, before pushing to new highs in April. However, the biggest surprise to investors has been the surge in bond yields, especially across Developed Markets (DM).
- The surge in bond yields across DM has not been driven by overshoots in inflation expectations, and instead reflects stronger investor risk appetite.
- As the reflation trade has matured, significant risk rotations have unfolded from global bonds (and gold) to equities, from growth stocks to value stocks, and from Asian equities toward DM.
- The very strong recovery, and progress on COVID-19 containment and vaccination, remains critical in supporting our positive view on risk asset performance.
- Investors need to actively manage their portfolios with caution as equity valuations are still high and the extreme lows for yields have likely passed.