Allocation Views: It’s tricky

Global equity markets are currently fragile despite a positive growth outlook, with rising volatility suggesting caution in taking aggressive portfolio positions. While global stocks are perceived to have more performance potential than bonds, a neutral asset allocation stance is maintained. The macroeconomic landscape shows constructive growth driven by favorable leading indicators, with recession risks diminishing in some developed economies, particularly the U.S. Inflation remains a concern, though risks are now more balanced, particularly with services inflation moderating slowly due to tight labor markets. Divergent central bank policies are expected, with many likely to begin rate cuts, though caution prevails as data confirming disinflation is awaited.

In terms of portfolio positioning, while a generally positive macro environment often favors risky assets, elevated premiums in those assets and fragile equity markets warrant a balanced approach. A reduction in optimism for Europe ex-UK equities contrasts with a preference for emerging markets due to their alignment with a recovering global economy. UK equities are viewed with slightly less caution, whereas Canadian and Pacific ex-Japan equities appear less attractive. While Chinese markets exhibit volatility, supportive policies are noted. On the fixed-income side, decreasing global bond yields have led to a reduced preference for longer-duration government bonds. Anticipated easing cycles in the West and sustained growth provide some optimism for high-yield corporate bonds, which are now favored over bank loans, with value found in high real yields amid continued volatility.