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Asset allocation – March 2020

Investment strategy

Maximilian MOLDASCHL
 

Still looking to buy dips.

These materials are 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.

 

KEY THEMES & MACRO ENVIRONMENT

  • Goldilocks still in place – the global economy started the year on firmer footing, but coronavirus disruptions will inevitably hit it. We expect a recovery, especially given that there is plenty of policy stimulus.
  • Coronavirus risk surmountable – market pricing has shifted from reflation to growth worries. We see risks more balanced around our base case on a 12-month horizon.
  • Equity corrections have restored the risk/reward payoff – we rely on our ‘goldilocks base case’ and our market dynamics signals to buy dips.

 

ASSET ALLOCATION: ASSET VIEWS

  • Equities: bought the dip – we bought US and emerging market (EM) equities in early February as per our roadmap. We are open to adding to our positions.
  • Goldilocks trades: long emerging market USD debt and EMU REITs – we continue to like carry assets, supported by the goldilocks environment.
  • Rates: short core EUR, long US inflation, short USTs via options – we still see fixed income markets as rich, but virus fears dominate in the short term.
  • FX: closed long USD – our long USD versus EUR and GBP had a good run this year. Our technical and fundamental assessment is more balanced now.
  • Long gold – gold still shines given the generally easy monetary policy, falling real yields and in both of our main risk scenarios – recession and reflation.
  • De-globalisation trades – we are long CAC/DAX and long USD/CNY as we remain strategically bearish on globalisation.

 

ASSET ALLOCATION: PORTFOLIO CORNER

    • Risk utilisation – we increased our active risk by buying US and EM equities.
    • Factor exposures from core views – our factor exposure is long market risk and neutral on most other factors, including duration.
    • Specific/tactical trades – we have implemented four trades outside of our MFA portfolio optimiser; these help us diversify our portfolios.

 

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