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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
This is a monthly snapshot of our Multi-Asset Team’s asset allocation views as of June 2024. It covers global equities, bonds and commodities and complements the more detailed analysis we share in our quarterly Multi-Asset Outlook.
*Please note that we use a more detailed key in our quarterly Multi-Asset Outlook.
Our view remains overweight in equities. The global economy is growing steadily, and recession risk has faded, with continued above-trend US economic growth and improving global growth momentum. At the same time, developed market inflation continues to cool. While inflation is still above central bank targets in most cases, we remain of the view that rates have peaked for this cycle and expect a loosening of monetary policy over the next 12 months.
US
We still take a neutral view on US equities. The S&P 500 Index appears expensive when evaluated using traditional valuation metrics. However, when adjusted for declining interest rates and long-term earnings growth potential driven by AI, the US index appears closer to fair value. Earnings growth remains strong, driven largely by mega-cap technology names. However, we expect this to broaden to other sectors considering a constructive macroeconomic backdrop.
Europe
Our view on European equities remains neutral. European growth appears to have troughed. In addition, the European Central Bank has initiated policy loosening, which should further boost risk sentiment towards European assets. French and UK elections present the potential for increased volatility; however, the medium-term impact on asset prices appears limited at this point.
Japan
We maintain our neutral view on Japanese equities, which have experienced significant outperformance in recent quarters, relative to global equities. While we view the structural case as largely intact, higher valuations, monetary tightening by the Bank of Japan (BOJ) and a potentially stronger yen present near-term headwinds for relative performance.
Emerging markets
Our outlook for emerging markets (EM) equities remains neutral. Cyclical and structural headwinds persist for Chinese assets. However, earnings are starting to stabilise and valuations remain attractive. Balancing these factors, we see a wide range of potential outcomes for EM equities in this environment and lean towards a neutral stance.
We maintain an overweight stance on core bonds. Market expectations of aggressive rate cuts have been squeezed out and risks appear more balanced relative to the beginning of the year. Wage growth and hiring continue to cool, but at a slower pace than anticipated. We think that the potential for further disinflation and market repricing supports our more positive view on duration.
US
Our US rates outlook is neutral. Recent upside inflation data surprises have driven market repricing in rates, with markets now pricing in less than two US rate cuts this year. We think that the round trip in US 10-year yields since early 2024 presents a more balanced reflection of the outlook for US policy.
Europe
We still have a neutral view on European government bonds. We believe disinflation across the European Union has further to go and we see less risk associated with fiscal policy and term premia. Uncertainty around elections in France leaves non-core spreads vulnerable to near-term weakness and volatility.
Japan
We maintain a neutral view, given our expectation that the Bank of Japan (BOJ) will remain patient as it looks to normalise policy. Top-line Japanese growth remains weak, and we are seeing slowing inflation. Nevertheless, we still agree with the narrative that Japan should, at some point, phase out extraordinary monetary easing.
We continue to take an overweight view on credit. We anticipate that spreads will remain range-bound, with limited room for further tightening given the market’s current pricing. With defaults peaking, we don’t expect spreads to widen meaningfully unless there is a strong catalyst. As such, we believe that the income component will drive returns this year.
Investment-grade credit
We anticipate that spreads will likely remain range-bound, with little room for further tightening. As a result, we see little potential for capital gains, hence our neutral view in favour of high yield.
High yield
We still have an overweight view on high-yield relative to investment-grade credit. We expect high-yield debt to benefit from better overall conditions for riskier assets. While spreads remain tight, total income provides a significant cushion against spread widening in the absence of a significant rise in default rates, which is not our base case.
Emerging markets
Our view on EM debt is underweight, primarily due to the expected continuation of low growth in EM economies. We see more limited opportunities for tightening across EM high yield. While the return of weak issuers to the primary market has boosted sentiment, flows have been limited. Continued strength in the US dollar remains an additional headwind for the asset class.
We maintain our overweight view on commodities, primarily driven by a more positive outlook for oil.
Energy
In energy markets, our view remains marginally overweight. Oil looks fairly valued, with prices in the mid US$80s. However, a positive roll yield — which reflects the lower cost of longer-dated futures — and heightened geopolitical risk warrant a more constructive stance.
Gold
We still have a neutral outlook on gold markets. Gold has meaningfully outperformed real rates over the recent inflationary period, which, in our view, limits further price upside from here. A punitive roll yield requires a substantive price appreciation to justify any overweight.
For professional and institutional investors only. All investing involves risk. Investment markets are subject to economic, regulatory, market sentiment and political risks. All investors should consider the risks that may impact their capital, before investing. The value of your investment may become worth more or less than at the time of the original investment. If the strategies do not perform as expected, if opportunities to implement them do not arise, or if the team does not implement its investment strategies successfully, then a strategy may underperform or experience losses. Past performance is not a reliable indicator of future results and investments can lose value.
This material is prepared for, and authorised for internal use by, designated institutional and professional investors and their consultants or for such other use as may be authorised by Wellington Management. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund.
Any views expressed herein are those of the iStrat Multi-Asset Team, are based on available information and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. While any third-party data used is considered reliable, its accuracy is not guaranteed.
This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.
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