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Asset allocation monthly – Cautiously optimistic

Outlooks & Research

BNP Paribas Asset Management
 

The challenges of the continuing pandemic will likely delay the cyclical recovery expected for 2021, but not cancel it. This leaves intact our favourable medium-term view on risk, particularly for equities.

Key market drivers

  • Progress on vaccinations and expectations for additional fiscal stimulus in the US
  • New virus strains and delays in vaccine rollouts delay the economic recovery

Views & asset allocation

  • Fundamentals and market dynamics suggest medium-term upside for risky assets
  • Bullish technical signals are starting to appear in some equity markets, but our indicators still advocate caution, with sideways moves expected during the first part of 2021

Tactically, we have reduced our exposure to risk for market-technical reasons and given the uncertainties over the near-term evolution of the pandemic. Given our flexible approach to asset allocation, we see any market consolidation in the short term as a buying opportunity.

Equities

We are neutral on equities overall with an overweight in EMU small caps against EMU large caps. Equity risk premiums are still high relative to real bond yields in the US, so equities remain attractive, even if valuations appear high.

Government bonds

We are short EMU bonds. Eurozone bond yields are exposed in the event of a cyclical recovery in the area. Being long EUR inflation-linked debt gives portfolios upside potential in reflationary environments.

Credit

We are long emerging market local currency debt amid the continued search for yield and expectations for EM currency appreciation.

READ THE LATEST ASSET ALLOCATION MONTHLY BY CHRISTOPHE MOULIN AND DANIEL MORRIS, WHICH ALSO HAS VIEWS ON CURRENCIES, COMMODITIES AND THEMATICS


 

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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