House Views - March 2022

REDUCING EXPOSURE TO PRICIEST MARKETS

More risks feeding into inflation. Recent developments regarding Ukraine invasion have sent investors into a flight to quality. How long these geo-political tension will last is uncertain, but these developments will undoubtedly tend to keep commodity prices high (starting with oil and gas) and sustain the general upward pressure on prices. With activity still strong in developed economies but inflation remaining high longer than expected, central banks will gradually tighten their monetary policies. This should mean a pursuit of the global rise in interest rates and greater volatility in high-valued assets.

 We have reduced our global risk exposure, going from Overweight to Neutral on equity markets. We have notably reduced exposure to the US equity market, which still looks expensive on fundamentals compared to the other developed economies. Also, inflationary pressure remains higher in the United States than in the euro zone, suggesting the Federal Reserve is likely to tighten policy faster and harder than the ECB. At the same time, we are increasing exposure to the British market in line with our ongoing Overweight to the Euro area. European equity markets still look attractive in value terms and also because of their sector breakdown. They offer a way to hedge current risks. We are also adding exposure to hedge funds and retaining our Overweight to gold - both are attractive alternatives in uncertain times. Finally, meanwhile, we are yet further reducing our exposure to corporate bond markets, moving to strongly Underweight, as rates continue to rise and asset purchase programmes wind down. 

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