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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 - As countries emerge from lockdown, a focus on more not less risk management
  • GLOBAL TACTICAL ASSET ALLOCATION - Focus on quality and growth
  • UBP ECONOMIC OUTLOOK - Q3 momentum set to rebuild
  • UBP ECONOMIC OUTLOOK - Coordinated policy responses in the Eurozone
  • GLOBAL BONDS - Diversify high yield into Europe contingent convertibles
  • GLOBAL EQUITIES - Favour quality growth biased equities
  • RECENT VIEW CHANGES - Restoring protection

  • As economies around the world emerge from lockdown, May saw risk appetite grow leading equities to resume their rally from the March, 2020 lows and spreads continuing their compression in both USD and EUR credit.
  • With growing market enthusiasm for risk, fiscal policymakers appear to have overcome their initial angst about additional measures with France, Germany and the European Commission tabling a potentially game-changing proposal that involves both common debt and grants rather than loans to fund a transition from battling the virus to a promise of Pan- European economic transformation.
  • While encouraging that fiscal policy is starting to match the monetary commitment by central banks, household income and corporate profit growth is needed to slow what should be a pick up in defaults in the months ahead posing a key hurdle in the global recovery trajectory.
  • As a result, though we continue to sit with our highest equity weights of the year, not wanting to stand against the commitment of global central banks or their fiscal counterparts, we increased our risk management focus in late-May adding to our outright put protection. This leaves clients able to benefit from ongoing rallies in equities while protecting against disappointment to growing expectations for the months ahead.
  • In addition, we pivot our focus in terms of portfolio return drivers from the market driven, beta focus since March to one that is increasingly alpha focused reflecting our fundamental concerns regarding the pace and magnitude of any economic and earnings recovery looking ahead.
  • In particular, with the global economy facing a gradual rebound post-lockdown weighed down by heavily leveraged balance sheets but augmented by supportive monetary policy, the global landscape mimics Europe following the eurozone crisis as well as post-Abe Japan. In both of those episodes, investors were rewarded for taking a quality and growth focus in their stock selection. As a result, we expanded our already overweight to quality/ growth biased equities in client portfolios in the month.
  • In fixed income, we look to diversify our carry exposure. Though we expect European bank equity to face pressure looking ahead, we view European Bank CoCos as a credible alternative to both EUR and USD high yield credit following their strong rally from their March lows.
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Analisi

Investment Outlook 2020

The Global Economy at the Crossroads

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