Global CIO Michael Strobaek: "We are in a solid growth environment."
Concerns about US-China trade policies and monetary policy are contributing to increased market volatility. We believe that the equity bull market is moving into a different phase, but attractive investment opportunities remain, including in emerging markets (EM).
Volatility spikes are something that investors have become reacquainted with this year, but the global sell-off that we have witnessed in October may be disconcerting nonetheless. Precisely why global markets should correct sharply at this point is not easy to answer.
The imbalance of appreciating US equity prices and the steep increase in government bond yields has certainly played a part; as has the path toward monetary policy normalization, with markets increasingly considering a more aggressive tightening cycle.
In phases of uncertainty, it is pivotal to stay the course. Despite risks related to politics in the Eurozone, monetary policy tightening and the China-US trade dispute, we continue to believe that growth should reaccelerate this quarter and into 2019 as temporary shocks dissipate and China takes steps to stimulate its economy. In terms of interest rates, our view is that the US Federal Reserve has clearly conveyed where it intends to go and there should be no surprises.
Confident in our positive equities view
In our recent Investment Committee meeting, we confirmed our positive view on equities given the solid global growth environment, and turned from negative to neutral on government bonds in light of the recent steep yield increases. We also remain positive on commodities, which should benefit from the robust late-cycle growth environment.
Despite a bumpy road for EM this year, we are still optimistic on these assets given attractive valuations and healthy fundamentals in most EMs. Indeed, we haven't historically seen such a large divergence in valuation and performance between developed and EM equity markets . We just published an article this month that makes the case for EMs. In terms of US markets, the upcoming midterms in November present one possible risk for the EUR/USD, where we stay neutral.
Short-term disruptions aside, the Millennial generation will have a longer-term impact as consumers and investors. They place great value on sustainability – a factor our Millennials' Values Supertrend incorporates with a full environmental, social and governance (ESG) criteria overlay. While the sustainability market for investors is already rapidly expanding, the Millennials should further drive demand as they are set to inherit more than USD 40 trillion of wealth in coming decades.