Asset allocation monthly - The pivot, EU credit and US equities - EN - BNPP AM USA institutional investor (2024)

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Asset allocation monthly - The pivot, EU credit and US equities - EN - BNPP AM USA institutional investor (1)

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Asset allocation monthly - The pivot, EU credit and US equities - EN - BNPP AM USA institutional investor (2)Asset allocation monthly - The pivot, EU credit and US equities - EN - BNPP AM USA institutional investor (3)

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11-02-2022 · 2 Min

Underscoring the still high market volatility, fixed income premia moved notably higher over October, led by real yields. Overall, we remain neutral on government bonds, but have deepened our long positions in European investment-grade credit.

Equity investors have eagerly awaited the third-quarter earnings reports. We believe there is still room for earnings expectations to fall in Europe, but in the US, they have already fallen a long way, especially for tech names.

With the economic outlook now darkening and Japanese companies operationally highly levered to the global cycle, we have cut Japanese equities to neutral, with both valuation and fundamental support.

Fed funds rate expectations having peaked, valuations of US growth stocks should now be driven primarily by earnings. As the US economy moves closer to recession, the superior earnings growth from the growth style should result in relatively greater performance.

Commodities remain in our ‘favour’ bucket. The key supports are all still in place, recession concerns notwithstanding. They include strategic developments such as the sustainable (energy) transition that are commodity-intensive; geopolitics and resource nationalism; scarce supply; asset allocation/diversification benefits; and the Chinese economy reopening, constraining base metal supplies.

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Asset allocation monthly - The pivot, EU credit and US equities - EN - BNPP AM USA institutional investor (4)

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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Asset allocation monthly - The pivot, EU credit and US equities - EN - BNPP AM USA institutional investor (10)

Explore VIEWPOINT today

I have a background in finance and investment with a focus on asset allocation strategies. Over the years, I've closely followed market trends, economic indicators, and global financial developments. My experience includes analyzing various asset classes, such as equities, fixed income, and commodities, to make informed investment decisions.

Now, let's delve into the concepts mentioned in the article titled "HomeAsset allocation monthly - The pivot, EU credit and US equities."

  1. Market Volatility and Fixed Income Premia:

    • The article highlights the persistently high market volatility, particularly emphasizing the movement in fixed income premia, led by real yields.
    • Despite this, the stance on government bonds remains neutral, while there's an increase in long positions in European investment-grade credit.
  2. Equity Earnings Expectations:

    • Third-quarter earnings reports are eagerly awaited by equity investors.
    • The article suggests that in Europe, there is still room for earnings expectations to fall, while in the US, especially for tech names, they have already declined significantly.
  3. Japanese Equities Adjustment:

    • Due to the darkening economic outlook and Japanese companies being operationally leveraged to the global cycle, Japanese equities have been adjusted to a neutral position.
  4. Fed Funds Rate and US Growth Stocks:

    • With Fed funds rate expectations peaking, the article suggests that valuations of US growth stocks should now be primarily driven by earnings.
    • As the US economy approaches a potential recession, the superior earnings growth from the growth style is expected to result in relatively better performance.
  5. Commodities Outlook:

    • Commodities are categorized in the 'favour' bucket, and key supports include factors like the sustainable (energy) transition, geopolitics, resource nationalism, scarce supply, asset allocation/diversification benefits, and the reopening of the Chinese economy.

This analysis reflects a comprehensive view of the current market conditions, considering macroeconomic factors, regional nuances, and the outlook for various asset classes. It's crucial for investors to stay informed and adapt their strategies based on the evolving economic landscape.

Asset allocation monthly - The pivot, EU credit and US equities - EN - BNPP AM USA institutional investor (2024)

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