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Asset allocation August 2019 – Goldilocks holds

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.

We see the medium-term backdrop as mainly supportive, but we also believe a tactical approach to risky assets is warranted. We are looking to buy dips in equities given the prevailing support from goldilocks.


  • ‘Fragile goldilocks’ still in place – The three key pillars behind goldilocks (macro data, central banks, and trade war dynamics) remain supportive, but we feel markets have already largely priced in this sweet spot. We are also continuing to monitor the risk scenarios around our base case closely as we still see this as a ‘fragile goldilocks’.
  • Central bank easing & market impact – At their respective July meetings, the ECB strongly hinted at upcoming stimulus – leaving the door open for rate cuts, rate tiering and quantitative easing (QE) – while the Fed cut rates by 25bps and announced the end to its balance sheet drawdown, which we see as an ‘insurance cut’. In China, easing also continues. All else being equal, this should support risk assets, depress real rates and revive inflation breakeven rates, although tactical risk/reward seems unattractive.
  • Earnings season – With goldilocks increasingly priced in, we are monitoring fundamental developments closely, too. The current earnings season is reasonably solid, especially against a bearish consensus heading into corporate reporting.
  • Chinese easing – Elsewhere, we look at what China’s easing could mean for its economy and its key trading partners. Given the upturn in measures like the credit impulse, we are hopeful for some stabilisation in the macroeconomic backdrop in H2.

Asset allocation

  • Looking to buy equity dips after taking profits recently – We still believe a tactical approach to risky assets is warranted, and are looking to buy dips in equities given the prevailing goldilocks support. We did so in developed market stocks in May and June, but took profits in late July on a tactical risk/reward view.
  • Long carry assets – We still see the search for yield dynamic extending further given central banks actions and remain long emerging market hard currency debt.
  • A focus on robust portfolios – Aside from our core views, we are also continuing to focus on building robust portfolios by holding trades with asymmetries, i.e. geared around a deeper slowdown or an overheating scenario.

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