Global CIO video: "Seizing opportunity in equity markets"
Financial markets have continued their rollercoaster ride amid a rapidly shifting mix of sharply elevated geopolitical risks and central bank action to combat persistently high inflation. Yet we believe that equities now offer a tactical opportunity for investors.
In an ad-hoc Investment Committee meeting, we discussed the challenging backdrop and what it means for our asset allocation. What is clear is that geopolitical risks remain high, with the Ukraine war potentially getting worse in the weeks ahead. Moreover, the elevated energy prices are likely to dent economic growth and push inflation higher.
However, the volatility and price declines of the last few weeks have also created opportunities, with equity markets pricing in a lot of negative news. The fact that the US Federal Reserve was confident enough to start a rate hiking cycle and a commitment from the Chinese government to introduce "market-friendly policies" are good news that should support risk sentiment, at least in the short run. Taking a cue from one of our investment principles, that the best opportunities are often contrarian, we now tactically overweight equities in portfolios.
Since the situation remains challenging and volatility elevated, we continue to stress the importance of nimble risk management and note that thematic and regional diversification is more crucial than ever.