Global CIO Podcast: "The US and Eurozone face the deepest recessions in the post-war period."
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Global CIO Podcast: "The US and Eurozone face the deepest recessions in the post-war period."

The coronavirus pandemic and its economic toll remain squarely in investors' focus. However, encouraged by strong fiscal and monetary support and the prospect of a gradual easing of lockdowns in many countries, equities have largely held on to the double-digit gains they made since end-March.

For the next month or so, economic data is likely to remain dismal. Yet, as of June, we expect the recovery underway in China to gradually take hold in Europe, the USA and elsewhere. Economic activity, however, will remain below pre-crisis levels well into 2021. We expect global gross domestic product (GDP) will contract by 3.5% this year, with the USA and Eurozone facing their deepest recessions in the post-war period.

In the Investment Committee, we believe that equities still offer upside potential over our tactical horizon given the likely economic recovery and continued strong policy support. Downside risks are limited by the fact that many investors, doubtful of the rebound, are still on the sidelines. In light of this, we keep our small overweight allocation to equities.

Listen to the new House View podcast with James Sweeney, Chief Economist and Regional CIO Americas.

Times remain challenging, which is why we continue to favor broad diversification when investing. We retain our overweight positions in emerging market hard currency bonds and high-yield credits, and have now decided to shift to an overweight portfolio position in investment grade corporates, as spreads remain attractive. We also remain overweight in commodities. We now expect energy to outperform other parts of the broader commodity complex given the sharp decline in production and gradual recovery in demand.