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Asset allocation quarterly – October 2019

Investment strategy



This article is intended for Institutional Investors (as defined in the Securities and Futures Act, Chapter 289 of Singapore) only and is not suitable or intended for persons who do not qualify as such.

Mind the reflation risks


  • Transitioning to a reflation regime? – Several developments suggest that a move to a reflationary environment is a material risk, if not immediately. We explore supply shocks given the ongoing de-globalisation; fiscal stimulus; and a more traditional route: an economic recovery, with a focus on Chinese policy easing.
  • Risks in fixed income are more skewed than in equities – A reflationary shock would represent a significant shift, and one that fixed income markets in particular are not priced for given their rich pricing compared to equities across regions.
  • Need to be nimble – We have long argued for the need for investors to be nimble in the current backdrop. Our base case remains ‘fragile goldilocks’, but the likelihood of our risk scenarios has increased.

Asset allocation

  • Neutral equities – With equities generally near all-time highs, and given the uncertain macro backdrop, we do not regard the short-term risk/reward ratio as appealing.
  • Underweight core EMU duration – Risks for fixed income markets are mounting: a reflation environment has not been priced in whatsoever. We continue to hold a short position in core EMU bonds.
  • Search for yield – We expect the ‘search for yield’ to continue for the time being, so we are holding a high carry position in emerging market external debt.
  • Robust portfolios – We continue to hold trades with asymmetries to our risk scenarios, e.g. long US breakeven inflation and several de-globalisation trades.


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