Global CIO video: "Investors should buy into equity setback"
The turn of the quarter brought with it a turn in investor sentiment.
After the S&P 500 had doubled in 354 trading days, markets entered the fourth quarter with a correction amid various concerns. Chief among them was inflation, which some fear may prove to be stickier than assumed. Weaker-than-expected industrial production, a reduction of stimulus by central banks and uncertainties over China also took a toll on equity markets, pushing volatility higher.
In our latest Investment Committee meeting, we discussed at length the risk factors that prompted equity investors to take a more risk-off approach. We note, however, that conditions for a cautious increase in equity allocations have improved, with technical indicators providing a contrarian buy signal. Moreover, the global economy should continue to grow and we should soon see a reacceleration in industrial production. As for inflation, we acknowledge that prices may be taking longer to come down, but still consider the elevated levels to be transitory.
In light of our assessment, we have tactically increased our allocation to developed market equities, leading to an overweight in equities overall. We remain neutral on emerging market equities given the risks and uncertainties surrounding China.