Against a backdrop of decelerating global economies and increasing geopolitical risks, the global economic outlook is deteriorating.
Around the world, central banks are in an easing sequence and bond yields look likely to remain lower for an extended period of time. Purchasing managers indexes are indicating that many developed countries are heading towards manufacturing recession and the services sectors could follow the drift.
Speaking in Singapore recently, Evan Brown, head, Macro Asset Allocation Strategy, UBS Asset Management (UBSAM), said the key change in the 2020s from the 2010s will be the switch of the key policy lever from monetary to fiscal.
According to Brown, as bonds and equities may increasingly correlate in this environment of changing market regimes, this consequently will heighten the need to broaden asset allocations and diversify portfolios.
“We are overweight on emerging markets (EMs) and ex-US developed markets, underweight on duration for fixed income and see opportunities in alternatives including hedge funds and real assets,” Brown said.
“In currencies, to combat the weakness of the US dollar, which is now at its peak, investors can look to hedge the Japanese yen,” he added.
Speaking at the same event, Geoffrey Wong, head of Emerging Markets and Asia-Pacific Equities, UBSAM, said he still considered EMs and China as investment bright spots.
“The upcycle has seen a disruption from Trump’s election and the ongoing trade wars. We believe there are attractive valuations for EMs and China, supported by shifting trends in domestic demand,” Wong said.
For China, Wong sees this being driven by what he called premiumization as Chinese consumers grow to favour premium brands over their less upscale equivalents. He also cites increased R&D innovation spending by Chinese companies as they increase their ability to compete globally.
In EMs such as India, Indonesia and Mexico, Wong believes the under-penetration of credit will present an opportunity for the banking sector.