May You Live in Interesting Times
After a first quarter which was dominated by the Russian invasion of Ukraine and a hawkish pivot by the Fed and other central banks – which is currently playing out in bond markets, perhaps investors might be grateful for a quarter to draw breath. However, inflation and supply chain concerns continue to weigh on global growth, and there is now the possibility of a policy over-reaction in an attempt to regain control of the inflation narrative. Interesting times indeed.
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The war between Russia and Ukraine and the global response to the conflict are evolving rapidly, and in a way that suggests the trajectories of economic growth and financial-market performance have been significantly altered from just a month ago. Although RBC GAM continues to think that the most likely outcome is for the global economy to continue expanding, they now expect slower growth and higher inflation, and they presume that the odds of recession have increased.
PGIM Quantitative Solutions offers their insights on the outlook for markets, where they contend some equity markets (Latin America and the UK) look cheap on a relative basis, that fixed income risk assets such as emerging market bonds offer better risk reward profile than government bonds, and the structural bull market in commodities remains intact based on supply constraints not easily remedied.
MFS investigates the prospects for the global macroeconomic outlook under a conflict setting, then focuses on the prospects for the fixed income markets.
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Amundi reiterates their long-held view of a macro-financial regime shift as globalisation unwinds and supply chain bottlenecks occur. This has resulted in a wave of reshoring and an inflation spike, forcing investors to seek real returns and reconsider the role of government bonds and reconsider diversification alternatives.
Nuveen presents their Q2 2022 Global Investment Committee Outlook, which focuses on prospects for markets and asset classes, portfolio construction themes and more besides.
Blackstone's Joe Zidle, Senior Managing Director and Chief Investment Strategist in the Private Wealth Solutions group, offers his latest insights and views on markets.
Robeco remains constructive on the outlook for developed economies over the next year. Stagflationary fears appear to be overblown, though China is under scrutiny due to a further bout of Covid-19. They believe that the rotation away from growth stocks started in late 2020, and with yields rising rapidly, growth stocks remain under pressure.
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Much has changed since BlackRock's 2022 outlook – a war, energy shock and the Federal Reserve’s pivot on monetary policy. They stay underweight bonds, even as yields have sprinted upward, and overweight equities – with new regional differences.
In Lazard's view the invasion of Ukraine is a key turning point for Europe, determining capital flows and allocations for years, possibly decades, as sovereignty issues in terms of defence, energy Independence, and capital and natural resource management become priorities.
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Franklin Templeton notes the change in emphasis of the markets from Covid-19 to inflation and inversion. Heightened volatility and increased dispersion are attracting long/short funds in both bond and equity markets. Meanwhile, opportunities exist for macro players, where the changing geopolitical and monetary policy circumstances also afford opportunities in both the short and medium term.