During a global easing cycle now in progress and a soft-landing unfolding PineBridge sees downside risks receding, bolstered by strong supply-side factors that are likely to free up growth potential while keeping inflation in check.
As a result, the asset manager has a “constructive-leaning view “of multi-asset portfolios at the midyear point, with its outlook at the global asset class level boiling down to equities over credit, and credit over rates.
In equities, “promising areas include Asia-Pacific exporters, where the rolling recession in goods manufacturing appears to have ended,” Hani Redha, portfolio manager for global multi-asset at PineBridge Investments, told a media briefing last week.
Another favourite is UK equity, which is “inexpensive in the wake of Brexit and has above-average sensitivity to interest rate cuts. It is also supported by a positive immigration tailwind in an aging world.”
“Given the UK’s statistical undervaluation, policy rate cuts are likely all that is needed to initiate modest outperformance,” said Redha (pictured), who believes that policies from a new “centre-left” Labour party could surprise markets to the upside.
The Pinebridge global multi-asset team consider credit spreads as tight almost everywhere, and that conditions are likely to keep them tight.
“Exceptions include Asia’s high yield market (ex-China property) as well as mortgage-backed securities, which offer normal spreads when most others are tight, and where banks’ ability to hold deposits should improve with rate cuts,” said Redha.
PineBridge noted that the US economy and inflation are “coming off the boil”, while the Treasury and the Federal Reserve also appear to be cooperating to cap upside volatility, with the Fed ending quantitative tightening early while the Treasury initiates a bond buyback program.
In this environment, Redha expects above-average risk-adjusted return potential through duration, by owning the global government bond market (ex-Japan) from the belly on out the curve.
“At present, European curves look more interesting than Treasuries, with this differential poised to become much wider if a Trump win reflates the US while deflating others,” said Redha.
Meanwhile, China’s push for de-dollarization by shifting reserves from US Treasuries to gold, along with the central bank’s efforts to stabilise the renminbi is bolstering gold’s position. These actions have given an unusual 5% annualized tailwind to gold returns since Russia’s invasion of Ukraine, by PineBridge’s estimates.
Finally, “with consequential elections coming up, be prepared to adjust geographic tilts at the margin,” warned Redha.
