Global CIO video: "Medium-term perspective remains positive"
So far, the year on financial markets has not been for the faint-hearted. Driven by more hawkish central banks, markets have been on a veritable rollercoaster ride, with both equity and bond markets suffering losses.
Changing monetary policy expectations in response to still very high inflation levels as well as geopolitical tensions have created a challenging environment for financial markets this year. Indeed, they may well lead to renewed setbacks going forward.
Our latest Investment Committee meeting allowed us to carefully assess the market backdrop amid shifting expectations for central bank policy. Though we continue to expect inflation to ease in the months ahead, predicting the timing of such an easing is proving difficult. All things considered, we retain our neutral tactical allocation to equities for the time being, but are ready to seize opportunities should equity markets be subject to another setback in the weeks ahead. After all, we believe that equities continue to offer an attractive return outlook in the medium term as robust economic growth should further underpin strong corporate earnings.
Separately, we retain a tactical underweight in government bonds. Even though yields have risen strongly, we expect them to rise further as growth remains strong and central banks tighten policy, with the US Federal Reserve, for instance, seen beginning to raise interest rates in March. As for commodities, we remain neutral on the asset class as a whole and believe that fully diversified baskets are best suited for inflation hedging. However, we see further upside for oil prices.