After having recovered from stickier-than-expected inflation and avoided a widely anticipated slowdown in the economy, the environment for risk assets is improving.
This is according to Michele Barlow, head of investment strategy and research, Asia Pacific at State Street Global Advisors (SSGA).
“We’re feeling pretty good about risk assets. We like equities,” she told FSA in an interview.
“Valuations in the US have gotten quite expensive but I think the outlook is still positive. Growth is looking pretty solid, that’s good for both earnings and for revenues.”
“Also despite the fact that growth is holding up pretty well, we are anticipating the potential for further rate cuts by the Fed,” said Barlow (pictured)
This stance has changed since mid-year when the firm was still relatively cautious on risk assets.
Barlow also has a positive view on government bonds, more so than credit, due to tight credit spreads.
“It’s really more about carry and what you get from government securities than anything,” she said. “We prefer government securities over credit from a capital appreciation standpoint.”
Elsewhere, Barlow expects markets will start to see performance broadening out beyond the so-called ‘Magnificent Seven’ into more cyclical areas of the market.
She pointed to areas such as industrials, financials and energy. “These are areas where we could see some level of deregulation and support through policy support next year,” she said.
Vulnerable areas
Barlow is less optimistic however, about European and emerging markets equities. She remains neutral on Chinese equities despite the widely lauded policy measures announced by the government.
She said: “While we’ve been seeing some hints of good news coming through, we’re still waiting to see some of the structural reforms we think that are going to be needed in order to stabilise growth and bring China out of the deflationary slump that they’re in at the moment.”
“It feels like it’s more of a traders market,” she added. “Until we get structural reforms in place, where we see sustainable growth and sustainable earnings, you’ll see periods of euphoria on the back of strong government support until things start to wane and earnings don’t come through or growth starts to slow again.”
