Economic uncertainty persists, and investors must monitor the impact on corporate behaviour, but some of the downside risks are more limited, says Schroders. Hence, the UK asset manager remains positive on equities, with a focus on financials in the US and Europe.
“We think that the risks of a cyclical downturn are quite well-contained. The more medium-term risk relates to the sustainability of debt levels. For now, we balance our positive view on equities and gold as we monitor the US dollar,” said the Schroders multi-asset investment team.
Although, tariff-related news continues to move in several directions, the outcomes on trade so far, compared with “Liberation Day”, are consistent with Schroder’s baseline expectation of 30% tariffs on China and 10% on the rest of the world, with an effective tariff rate of 12%.
However, the unpredictable nature of the current US administration is leading to a focus on diversification and, with investors highly exposed to US assets, Schroders expect that greater focus on risk to result in rebalancing flows away from the US.
They favour gold as a portfolio diversifier which will be negative on the US dollar, expressed against the euro as well as a positive for local emerging market debt.
They also maintain a neutral view on government bonds.
“While yields have risen and valuations have improved, medium-term concerns remain, due to increasing debt levels and lingering inflation risks in the US,” they noted.
“Although market expectations have moved closer to our outlook, we still anticipate less policy easing from the Federal Reserve than what is currently priced in. Outside the US, inflation concerns are more muted, and we remain long German bunds versus US treasuries.”
Schroders also believes that increasing global oil supply will push the market into a surplus, weighing on oil prices through 2025.
However, events in the Middle East pose a risk to that view should there be significant disruption to oil supply from the region, the multi-asset investment team warned.
