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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 - Staying Engaged in Markets but actively Managing Risks
  • GLOBAL TACTICAL ASSET ALLOCATION - Easing risks and a more aggressive Fed rebalancing the global risk dynamic
  • UBP ECONOMIC OUTLOOK - Orderly slowdown in Q3 GDP growth in the main regions
  • UBP ECONOMIC OUTLOOK - Is global industry near a bottom?
  • GLOBAL EQUITIES - Earnings downgrades set to continue despite a reassuring reporting season
  • GLOBAL BONDS - Opportunities emerging to lengthen US duration
  • RECENT VIEW CHANGES - Continue to participate in upside potential through call options

  • Equities, bonds, and gold all moved higher in October highlighting the challenge facing investors in markets.
  • The easing in tensions across both the US-China trade war and UK-EU Brexit negotiations has helped restore some risk taking among investors. At the same time, economic optimism continued to fade especially in the face of mixed US economic and consumer data.
  • With the US Federal Reserve setting a high bar to raise rates even if the economic data rebounds while staying on the sidelines absent negative surprises, our concern highlighted in last month’s report that investors may face a ‘gap’ between limited monetary policy support and emerging fiscal support has eased modestly.
  • Despite this, risk management remains a focus with equities and fixed income volatility having returned to levels seen prior to the August sell-off; the asymmetric approach that has served investor portfolios well over the past year remains valuable going into year-end.
  • Indeed, the ‘temporary’ US money market instability has spread well into October and with the Fed in a more reactive mode, the risk of a liquidity scare in markets remains in the near term though would likely be met by more aggressive Fed action as seen in Sep-Oct.
  • As a result, a quality hold to maturity bias with a reasonable cash cushion in fixed income portfolios is preferred to weather near-term volatility and capitalize upon opportunities that might arise. We continue to seek opportunities to lengthen US duration to cushion against liquidity scare risks.
  • In equities, the 2019 corporate earnings season is repeating the events of previous quarters with conservative expectations going into the reporting season being beaten but overall estimates looking ahead continuing to face downgrades.
  • The declines in the HK and China equity markets have presented a tactical opportunity to rotate emerging market and Asia equity exposure in their favour.
  • FX has emerged as an important return driver as outlined last month with the US dollar weakening 2% in October. With a weakening US dollar expected in 2020, FX and precious metal opportunities should present important return prospects going into the year end.
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