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Confident in moderate growth tilt




After the Q4 sell-off that reflected deteriorating liquidity and economic conditions, we see more room for equities to rebound, as reasonable valuations and dovish central banks should support risk sentiment.

Global economic growth is set to slow in 2019 as manufacturing activity continues to weaken. Yet with labor markets expected to be resilient and support consumption, we do not see the recent drop in soft economic data as a sign of an imminent recession.

AAUC Global Investment Strategy & Research

On the heels of recently weaker macro data, we expect the US Federal Reserve (Fed) to pause its hiking cycle in the first half of this year, providing relief to liquidity conditions and financial markets. In this context, we expect stock markets to recover further, supported by more realistic valuations. While US equities have led the rebound, we prefer to express our constructive view via our relatively pro-growth sector mix. Among our preferred sectors, energy appears most attractively valued. In our regional allocation, we stick to our preference for emerging markets (EM), which were more resilient in the last sell-off. They should benefit from an improvement in US-China trade relations and the stabilization in EM growth dynamiAAUC we expect for 2019.

Supertrends: Virtual and augmented reality back in focus

Given the challenging global growth outlook and the earnings warning from Apple, IT lagged in the recent recovery. Still, the sector should structurally benefit as digitalization continues to expand into almost all areas of life. In our Supertrend “Technology at the service of humans,” we expect the sub-theme “Virtual and augmented reality” to regain prominence. Venture capital investments have surged in this area and new development platforms at larger technology companies should, in our view, result in substantial growth.

No longer negative on investment grade credits

In fixed income, we see the risk of a significant increase in government bond yields as more limited in H1. This is also the case in EUR and CHF, where we now have a neutral duration view.

With investment grade (IG) spreads having widened considerably in 2018, we no longer see IG corporate bonds as underperforming. We retain our preference for a mix of core government and emerging market bonds.

Tactically positive on oil but neutral on overall commodities In alternative investments, we remain cautious on real estate, but see less downside potential after the December correction. Our neutral EUR bond yield outlook reinforces our preference for Eurozone real estate. In commodities, we expect oil to rebound should OPEC and Russia implement the promised supply cuts starting this month. At the same time, we have neutralized our previously positive commodity view in light of persistent growth concerns.

EM currencies set to rally further, GBP still undervalued With the Fed adopting a more market-friendly tone and Fed rate hikes entirely priced out for 2019, the USD weakened across the board. As the repricing in short-term US rates may have gone too far, further USD softness should be more limited. At the same time, the fundamental undervaluation of our EM basket and attractive interest rate differentials should support the recovery of EM FX. Finally, GBP valuations remain very attractive. We expect the currency to recover.






Important Information:

This part of the material: (i) aims to provide macro-market commentary; (ii) does not contain any statements or advice in relation to any specific marketable security or financial product; and (iii) does not take into account your personal circumstances and should not be treated as any form of regulated financial advice, legal, tax or other regulated service.