As global monetary policy continues to drive sentiment, pockets of opportunity remain in advanced economies. Investors should be prepared to look hard for growth while remaining protected on the downside.
Antoine Lesné is head of ETF sales strategy EMEA at State Street Global Advisors
ASSET ALLOCATION
Paul Jackson, managing director, head of multi-asset research at Source, says: “We still prefer equity-like assets, but are reducing the extent of their overall weighting in our asset allocation model. At the same time, we believe it is worth shifting some of the regional focus within the equity exposure, in particular reducing weight in the US, the UK and emerging markets. We are still most positive on Japanese and eurozone equities, but would hedge the currency in the latter.
The Fed’s decision to raise interest rates did not catch too many people by surprise, but the Fed is doing so at a time when some economic data would actually support loosening. Case in point is the US manufacturing sector, which after six years of economic expansion is starting to show signs of weakness.
That said, we would also highlight that some other areas are still reasonably strong, namely the service sector.
The Fed clearly feels the need to start normalising policy after maintaining a very loose stance for the last seven years. We think they can raise rates another three times during 2016, but the weakness of the manufacturing sector highlights the risks of such a path for the equity market.
Investors must wait to see what impact such tightening will have on the economy.”
