Global CIO video: "This bout of inflation is likely to be transitory."
As the world recovers from COVID-19, investors are no longer as worried about the pandemic as a few months ago. New concerns have moved center stage, including a spike in inflation, particularly in the USA.
The recovery from the coronavirus pandemic is gaining further pace, with global growth continuing to accelerate as economies reopen. Though investors are no longer as worried about COVID-19 as a few months ago, new concerns have become top of mind. A spike in inflation, particularly in the USA, has fueled worries that central banks may start withdrawing their stimulus sooner than anticipated. We continue to believe that the latest spike in inflation will be transitory.
Our latest Investment Committee meeting allowed us to take stock not only of the increase in inflation, but also our overweight in commodities. Commodities have had an exceptional run, gaining over 20% this year following a sharp rebound in the second half of last year. Having an overweight allocation to this asset class in portfolios since January 2020, we have been able to clearly benefit from this rally. Now, however, signs of potential weakness seem to be emerging, which is why we decided to take profit on commodities and lock in the strong gains we have made.
As for equities, we expect economic growth to remain a positive driver in the medium term. Yet our tactical sentiment and positioning indicators still suggest an elevated level of investor complacency, which is why we prefer to keep the asset class at benchmark allocations for the time being. We retain a cyclical tilt in portfolios thanks to our continued underweight in government bonds, which we still consider unattractive.