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With US yields near 4%, we took profits on our US duration underweight, lifting government bond and US bond allocations to neutral in our multi-asset portfolios. Rising concerns about the growth outlook should, in our view, cap the upside for bond yields from here.  

We see meaningful risk still of a sharper equity drawdown led by earnings adjustments. With European equities facing the largest downside to earnings, this is our main short position.

We favour Chinese (and Japanese) equities. Chinese stocks are supported by an easier monetary policy; a relaxation of regulation; decent earnings expectations; attractive valuations; positive signs on the outlook for an easing of China’s zero Covid policy.

Our level of conviction on the positive outlook for European investment grade credit is growing. The fundamentals are strong; Investment Grade (IG) looks attractively valued versus equities; it is possible that governments and the European Central Bank will provide support (e.g. in sectors such as utilities); corporate indebtedness is falling and cash balances are high, so any pressure to deleverage is conspicuously absent.

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Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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