Multi asset: US interest rate cuts and Chinese stimulus encourage markets

Modestly overweight equities and bonds, neutral on commodities, still underweight property.

Our proprietary Investment Clock is indicating we are in the stage of the economic cycle when growth is improving (if slowly) and interest rates can be cut as inflation weakens. We wouldn’t be surprised to see a soft-landing play out in the US with the market now expecting more aggressive monetary policy easing there. The US has been the best performing major economy while Europe and China have patchier growth pictures. Germany appears to have stagnated this year but China is now taking action to stimulate its economy. Given this patchy but still somewhat improving global backdrop, we are positioned positively in our funds and have benefitted from an overweight position in equities over the last 18 months. However, given ongoing geopolitical risks, we are less overweight risk assets than we were before the summer.

Cross asset:

• Equities: modestly overweight given a slowly improving macro environment, easing monetary conditions globally and signs of earnings growth recovering.
• Commodities: around neutral given ongoing geopolitical risks which could easily lead to ‘spikeflation’.
• Property: slightly underweight as the UK economy lacks strong positive momentum and interest rates are not being cut aggressively.
• Government bonds: overweight as the market responds to the start of an interest rate cutting cycle.
• Credit: constructive, but watchful for signs of stress.
   

Equity regions:

• Overweight US equities given superior economic performance in the region, compared to Europe and China, and the strength of tech-related earnings.
• Overweight emerging market equities now that China is very active in trying to stimulate its economy.
• Underweight UK, Europe given weaker relative economic performance compared to the US.
• Underweight Asia Pacific, preferring emerging markets now.
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Currencies:

• Underweight the US dollar as interest rates are cut.
• Neutral sterling where rate cuts are likely to be less aggressive than in the US.
  
  

Sectors:

• Overweight the interest rate sensitive consumer discretionary sector given rate cuts expected.
• Underweight utilities given we are not in a defensive period but growth is improving.
• Neutral on technology given elevated valuations (but not underweight given growth potential).
   

This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.