Staying the course in a ‘goldilocks’ environment

Executive summary

  • We remain bullish on global risk assets, namely Developed Market (DM) equities, and positive on Asia ex Japan equities, and fixed income. For the next 12 months, we continue to expect positive returns from fixed income and equities (ex-China).
  • With global growth likely to hold, corporate credit investors, especially across DM, should enjoy reasonable returns. We also remain positive on global sovereign bonds as real yields are attractive enough to generate favourable income-streams, while providing some cushion if growth unexpectedly slumps.
  • Geopolitical risks have jumped above trend with the Israel-Hamas conflict broadening, but as emphasised previously, any adverse reactions to geopolitical shocks can ‘wash-out’ and risk assets may eventually return to positive trends.
  • With geopolitical risks likely to persist, investors need to maintain active management to capture alpha opportunities across countries and sectors.
  • While the latest sharp spike in geopolitical threats seems to be easing, it remains prudent for investors to defend their portfolios – from the ultimate ‘known unknowns’ – with some exposure to gold and bonds.

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