BNP PARIBAS ASSET MANAGEMENT - TM Major markets 1440x300
Asset allocation analysis, Investment strategy

Asset allocation monthly – May 2019

May 6, 2019 - Maximilian Moldaschl, Senior Multi-Asset Strategist, Guillermo Felices, Senior Market Strategist

Beware the risks of a fragile goldilocks

This document 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.

Summary

  • Goldilocks firmly in place –Markets continue to price in a Goldilocks environment with equitiesmaking further gains. More stable,but generally moderate growth, contained inflation and dovish central banks underpin this environment.
  • But this remains a ‘fragile’ Goldilocks –Two plausible scenarios could cause disruption: a global economic slowdown –this would hurt equities,but support government bonds–and an overheating US economy, forcing the Federal Reserveto resume tighteningand likely causing both bonds and equities to suffer.
  • Asset markets currently reflect Goldilocks,but not its fragile nature –Equities rallied again in April and are now up by roughly 15% so far this year, while the yield on 10-year USTreasurybondsisclose to 20bp lower.
  • The US economy is still a bright spot–Despite growth stabilisingin major economies, markets are now more comfortable with the notion that more stable US growth is ‘safer’than the tentative European or Chinese stabilisation.

Asset allocation

  • Neutral developed equities and government bonds, but tactically short both –Central banks are supporting markets,but this year’s rallycalls for caution in the face of prevailing risks. We are tactically short DM equities and ‘core’ EMU bonds.
  • Still favour being long carry –The dovish tilt of the Fed and other major centralbanks continues to suppress market volatility, lower realyields and fuel investors’ search for yield. We are currently long emerging market hard currency debt.This enjoys a high carry and is protectedagainstEM currency weakness.
  • Exploiting asymmetries and building robust portfolios –Given the uncertain macroeconomic backdrop, we favour building robust portfolios via diversification tradesat this point in the cycle. We hold several positions/RV trades with interesting asymmetriessuch as long 5-yearUSTreasuryvs.German bonds and long the French CAC vs.the German DAX.

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As at May 2019.

© BNP Paribas Asset Management UK Limited 2019

On the same subject:
BNP PARIBAS ASSET MANAGEMENT - Finance 4 1440x300
May 8, 2019

This month Maximilian Moldaschl, Senior Multi-Asset Strategist in MAQS, explores the current goldilocks environment, explains why it is fragile, looks at what markets are pricing and concludes with the asset allocation implications.

BNP PARIBAS ASSET MANAGEMENT - Finance 4 1440x300
April 3, 2019

This month Guillermo Felices, Head of Research and Strategy in MAQS looks at the recent shift in central bank policy to a dovish stance, explores how this has created a goldilocks environment, explains why this is fragile however, and concludes with the asset allocation implications.

Monthly Video – April 2019

This month Guillermo Felices, Head of Research and Strategy in MAQS looks at the recent shift in central bank policy to a dovish stance, explores how this has created a goldilocks environment, explains why this is fragile however, and concludes with the asset allocation implications.

Monthly Video – May 2019

This month Maximilian Moldaschl, Senior Multi-Asset Strategist in MAQS, explores the current goldilocks environment, explains why it is fragile, looks at what markets are pricing and concludes with the asset allocation implications.