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Asset allocation video – Ebb and flow


BNP Paribas Asset Management


This material 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.

The ebb and flow of US market interest rates, inflation expectations and the future level of policy rates are currently the main drivers for asset returns around the world.

US market rates have risen further, as has the market’s forecast for the future level of the fed funds rate. Inflation expectations have also continued to advance.

The effects were seen in bond markets, both in the US and in emerging markets, while the relative performance of value stocks versus growth stocks was also impacted.

Eurozone government bond yields, however, have retraced part of the February sell-off thanks to a more assertive ECB.

What is next? We do not expect a significant increase in inflation expectations, but high inflation numbers this summer could still spook the markets and lead to a bigger sell-off. However, if the Federal Reserve continues to stand pat firmly, expected policy rates and real yields might ease back.

Asset allocation

We are cautious about the outlook for rates and prefer assets that can benefit from reflation.

This month, we reduced our short position in euro sovereign bonds, while increasing our allocation to US, Japan and China equities. We are now overweight commodities again, but have trimmed our tactical overweight in gold. We are now long the Australian dollar.

Watch the video with Daniel Morris, chief market strategist

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.

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.

This material is produced for information purposes only and does not constitute: 1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. It does not have any regards to the specific investment objectives, financial situation or particular needs of any person. Investors should seek independent professional advice before investing, or in the absence thereof, he/she should consider whether the investments are suitable for him/her.

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