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Monthly Investment Outlook

Monthly Investment Outlook

We publish a Monthly Investment Outlook that highlights our convictions on equities and bonds, as well as recent asset allocation changes.



Summary

  • MONTHLY INVESTMENT OUTLOOK - The US Federal Reserve's "whatever it takes" moment has arrived
  • GLOBAL TACTICAL ASSET ALLOCATION - "Whatever it takes" = Risky assets + Cheap portfolio protection
  • UBP ECONOMIC OUTLOOK - Moderate economic growth expected in 2020
  • UBP ECONOMIC OUTLOOK - Could oil prices derail world growth?
  • GLOBAL EQUITIES - More positive on Europe
  • GLOBAL BONDS - Favour a selective approach in credit markets
  • RECENT VIEW CHANGES - We added European equities and renewed asymmetric strategies

  • Global equities pressed higher in December with risk free yields rising while credit spreads compressed as liquidity growth accelerated into year end.
  • With the Fed recognising that it had not eased the USD liquidity backdrop meaningfully since September’s instability in USD money markets, the US central bank took a surprising step by committing to a minimum of USD500 billion in liquidity in the month to avoid year-end repo market volatility.
  • This move in combination with the Fed decision to buy USD60 billion in Treasury bills in October suggests the Fed has reached its equivalent of former ECB President Mario Draghi’s ‘whatever it takes’ moment. It has now committed the full force of its balance sheet to ensure broader financial conditions remain accommodative to support continued economic expansion.
  • A primary casualty of the Fed’s aggressive stance to pre-empt money market stress may be the US dollar. With the British pound having rallied strongly following the recent UK election, investors should now turn their attention to the euro, where we see the prospect of strength especially should fiscal policy momentum build in coming months.
  • A weak US dollar regime suggests that investors should cast a wider net beyond US equities in search of opportunities. Pullbacks in domestically-focused UK and European equities following their strong 4Q19 performance could provide an opening for investors in 2020. Similarly, aligning strategies with local priorities in China, such as technology, healthcare, insurance, and onshore A-share equities should benefit from a shifting policy regime ahead.
  • Headline strength in corporate credit masks some deterioration that can be observed in niche segments of the market. Given the proactive easing on the part of US and European central banks, a sustained widening in spreads can be averted though investors should expect volatility given near historical tightness.
  • The renewed escalation of tensions between the US and Iran highlights that the unstable geopolitical backdrop is now a constant factor for investors. As a result, we continue to focus on a diversified basket of ‘risk-off’ assets to cushion near-term instability. With the rally in gold in recent months, investors should turn their attention to Japanese yen and Swiss franc for their defensive properties.
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