Issue date: 2019-12-02
The following asset allocation is based upon a global investor with access to all the major asset classes.
March 2017 House View
|Risk||The Global Investment Group retains a cautious medium-term outlook, as a variety of political, financial and economic drivers point to higher levels of financial market volatility. While there are particular areas of value, investors should be highly selective in asset allocation decisions.||NEUTRAL|
|US Treasuries||While market stress and safe-haven flows support Treasuries, tighter labour markets, rising inflation and the upward trend in wages give the Federal Reserve the rationale to continue hiking rates throughout 2017 and 2018.||LIGHT|
|European Bonds||Bonds are not as well supported as growth and inflation pick up. This means the ECB is considering how long to keep monetary policy accommodative. Political stress could periodically affect peripheral and core bond markets.||LIGHT|
|UK Gilts||The Bank of England has delivered significant easing measures as uncertainty related to the EU referendum outcome is expected to cause the economy to slow. However, long-term valuations are expensive.||NEUTRAL|
|Japanese Bonds||The central bank is attempting to reflate the economy with its QE and yield curve control policy alongside negative short-term rates. The absence of yield makes this asset class relatively unattractive.||LIGHT|
|Global Inflation-Linked Debt||Inflation levels are expected to increase across developed markets as expansive fiscal policy in the US and Japan, currency weakness in the UK, and the rise in commodity prices all feed through into headline rates.||NEUTRAL|
|Global Emerging Market Debt||US dollar-denominated debt is our preference, both on valuation grounds and the protection from currency movements it provides. Yields remain attractive although the asset class is vulnerable to aggressive US rate rises.||HEAVY|
|Investment Grade||QE supports UK bonds, but has driven European yields to unattractive levels. US credit spreads are less attractive as Treasury yields increase, and riskier assets are preferred.||NEUTRAL|
|High Yield Debt||The hunt for yield is driving more investors to this asset class, although overcrowding remains a risk in some sectors, especially in the US when monetary policy is being tightened.||HEAVY|
|US Equities||Equities are buoyant following promised fiscal easing and business deregulation. While valuations are not historically attractive, dividend payments and share buybacks plus expected tax cuts support cash flows.||VERY HEAVY|
|European Equities||Corporate earnings are improving following a widespread pickup in economic growth across the region. Concerns remain over some banking systems, the lack of strong credit growth and the upcoming election cycle.||NEUTRAL|
|Japanese Equities||The market looks more attractive as easy monetary policy and fiscal stimulus for 2017 are helped by a cheaper yen. This is driving forward corporate earnings, share buybacks and business investment.||NEUTRAL|
|UK Equities||The UK economy has been resilient but uncertainty remains surrounding its future relationship with the EU. Sterling remains the primary driver of the relative attractiveness of UK companies with overseas exposure.||NEUTRAL|
|Developed Asian Equities||The improvement in the global economy will have a positive feed through due to trade linkages. However, expected US interest rate rises, a stronger dollar and protectionist policies may all offset this effect.||NEUTRAL|
|Emerging Market Equities||The outlook for Asia is dependent on US trade policy and the degree of monetary tightening or US dollar strength. More emerging markets are seen as attractive as the improvement in global growth feeds into commodity prices.||NEUTRAL|
|UK||The referendum fallout continues to affect liquidity and cause capital depreciation. Income remains attractive versus other asset classes although risks are elevated should conditions turn recessionary or political uncertainty persists.||LIGHT|
|Europe||Core markets continue to offer attractive relative value in light of the low interest rate environment supported by QE, while recovery plays are showing consistent capital value growth.||HEAVY|
|North America||The US market should benefit from an improvement in economic growth, although some Canadian property faces headwinds from an interest-rate sensitive consumer and significant office construction.||HEAVY|
|Asia Pacific||An attractive yield margin remains, but markets are divergent. Returns are driven by rental and capital value growth in Japan and Australia, but weakening elsewhere. Emerging Asia markets are risky.||NEUTRAL|
|Foreign Exchange||The US dollar has rallied following the US election and can benefit from a steady tightening of monetary policy. Europe looks less well placed than Japan to cope with the next phase of currency pressures, while sterling acts as a shock absorber after the EU referendum.||HEAVY $, MOVED TO HEAVY ¥, LIGHT € , MOVED TO LIGHT £|
|Global Commodities||Different drivers, such as US dollar appreciation, Chinese demand, Middle East tensions, OPEC decisions, and climatic conditions, influence the outlook for different commodities.||NEUTRAL|
|The US election result may mean a faster pace of interest rate rises is necessary should fiscal policy expansion lead to inflationary pressures. Easy policy is still expected in Europe, Japan and the UK to revive economic activity.||NEUTRAL|
This material is for informational purposes only and does not constitute an offer to sell, or solicitation of an offer to purchase any security, nor does it constitute investment advice or an endorsement with respect to any investment vehicle.
All information, opinions and estimates in this document are those of Standard Life Investments, and constitute our best judgement as of the date indicated and may be superseded by subsequent market events or other reasons.
Standard Life Investments (Hong Kong) Limited is licensed with and regulated by the Securities and Futures Commission in Hong Kong and is a wholly-owned subsidiary of Standard Life Investments Limited.
Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Standard Life Investments are authorised and regulated by the Financial Conduct Authority.