Cautiously optimistic on global equities




We are cautiously optimistic on global equities, whose value is no longer expensive, in our view. A slower tightening trajectory of the Federal Reserve is one of the key reasons why risky assets should regain their footing.


We continue to favor a mix of cyclicals and growth, but would use the industrials rebound to reduce some cyclical exposure.

AAUC Credit and Equity Strategy



The inversion of the US Treasury yield curve, trade tensions and the December rate hike by the US Federal Reserve (Fed) spooked equity markets in the fourth quarter, resulting in a sharp reversal of fortunes for outperformers such as US equities and growth sectors (IT, energy). The S&P 500 lost 14% in the fourth quarter, while the MSCI AC World closed 2018 with a negative return of –9%.


IT lags rebound


In early Feb., a likely slower trajectory of Fed tightening and guarded optimism on US-China trade relations gave rise to hopes of a further extension of the cycle. Equities therefore rebounded, with US stocks, energy and communication services outperforming. Our relative underperform views – consumer staples, utilities and real estate – also delivered. Yet, given the challenges to growth, the IT sector lagged behind.


Continue to favor EM over Eurozone equities


We are cautiously optimistic on global equities, whose value no longer appears expensive. Yet investor sentiment remains fragile as macro and political uncertainties linger. Slower Fed tightening is one reason to be cautiously optimistic that risk assets can regain their footing in the coming months. Other catalysts such as a US-China trade truce, another strong US earnings season and a stabilization of purchasing managers indices are also needed for equities to recover further. Though emerging market (EM) equities outperformed in the fourth quarter, we keep our preference for EM over Eurozone equities as additional Chinese stimulus measures are likely to boost economic activity in 2019.


Maintain cyclical, pro-growth sector tilt


Cyclical equity sectors appear to have overreacted to the decline in global PMIs so far. We therefore maintain our tilt toward a mix of cyclical (energy, financials), pro-growth sectors (IT, communication services) and sectors with pricing power (healthcare) over industrials, utilities, consumer staples and real estate.













Important Information:


This part of the material: (i) aims to provide macro-market commentary; (ii) does not contain any statements or advice in relation to any specific marketable security or financial product; and (iii) does not take into account your personal circumstances and should not be treated as any form of regulated financial advice, legal, tax or other regulated service.