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A taster of reflation

Investment strategy

Maximilian MOLDASCHL


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.


  • De-globalisation relief and reflation – positive geopolitical news has caused markets to trade in a reflationary fashion. We feel this may last in the short term, but further out, things look trickier.
  • Fixed income most at risk – we still see fixed income markets as being most at risk from a sustained move to a reflationary environment.
  • Weak data, but no imminent recession – we acknowledge the slowdown in the macroeconomic data, but we think it is too early to call a recession just yet.
  • Key differences to Q4 2018 – while the macro feels similarly weak, the central bank stance, valuations and positioning are clearly different.

Asset allocation

  • MFA portfolio optimiser – having introduced our new asset allocation portfolio optimiser which uses factor analysis to map core asset views to factor exposures, we will now also communicate views from a ‘factor viewpoint’.
  • Factor exposure – in the overall factor exposures from our current views, the standout is an overweight in Market Risk. Other factor exposures are light.
  • Overweight equities – we remain nimble and in a recent dip we added equity overweights, the main contributor to the overweight in the Market Risk
  • Underweight core EMU duration – we aim to be nimble and have reduced short exposure given yield moves. But risks from reflation remain large for rates.
  • Search for yield – we still believe in searching for yield. We remain in a high-carry EM external debt position and have added EMU REITs.
  • 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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