CIO view: "Setbacks open up opportunities"
October proved a trying month for investors. Yet the macroeconomic environment remains robust, and we continue to believe that growth assets like equities still offer potential.
Investors had a key mission in October: keeping calm. The market correction and volatility spike were not for the faint-hearted, but the start of November has brought some relief with equity markets rebounding. Another source of solace for financial markets can be found in the recent US midterm elections, which proved market-neutral in that the results were broadly as expected.
Growth drivers survive sell-off
Notwithstanding the October setback, we remain convinced that we are not facing an economic downturn given that global growth drivers remain intact. Our Investment Committee thus continues to see opportunities in equities, which we expect to recover and therefore retain a positive tactical view on this asset class. We see the most compelling opportunities in emerging market (EM) equities, and take profit on our positive view on Swiss equities as valuations are less attractive after their outperformance during the sell-off.
Headwinds for investment grade credits
In fixed income, we stay neutral on both government bonds and credits, including EM bonds, which offer attractive value. However, we turn negative on investment grade credits given a number of headwinds. As for currencies, we remain positive on EM currencies, which we still consider undervalued despite their recent recovery. We also continue to have a positive view on the GBP, which stands to benefit from what we expect will be a soft Brexit.
Infrastructure back on the agenda
Looking ahead, the G20 summit in Argentina this month will likely be a focus for investors and should put the topic of infrastructure back on the agenda. We make the attractive long-term case for infrastructure in our "Infrastructure – Closing the gap" Supertrend.