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Asset allocation video – Economic and policy crosscurrents

As world growth recovers from the Covid-19 shock and starts to normalise, investors face key questions such as how long will high inflation last; will central bank tightening shift the balance of risks from higher inflation to slower growth; are emerging market assets attractive enough to prompt a return of foreign investors; and can financial risk in China be contained.

Broadly, we believe the backdrop continues to favour risk assets (equities) over safe haven instruments (bonds) as long as real yield stays low. In emerging markets, the 12-month forward price-earnings ratio relative to global equities has fallen to a 10-year low, suggesting that EM equities offer good value. The probability of China risk wreaking havoc on global markets seems small.

Watch our monthly asset allocation video with Daniel Morris for our assessment of the inflation spike, the factors affecting the economic reopening, and the odds and timing of central banks normalising interest-rate policy.


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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