The latest quarterly outlook on asset class performance and allocation from BNP Paribas Asset Management, has positioned the group for a 'neutral' view on equities, with the manager's research citing prices near all-time hights amidst a backdrop of uncertain macroeconomic developments.
For fixed income markets, the manager sees risks mounting, and continues to hold a short position in core European Monetary Union bonds. However the search for yield is ongoing, which in BNPP AM's case means it is holding a high carry position in emerging market external debt.
In the summary of its latest report, the manager says:
- Transitioning to a reflation regime? - Several developments suggest that a move to a reflationary environment is a material risk, if not immediately. We explore supply shocks given ongoing de-globalisation; fiscal stimulus; and a more traditional route: an economic recovery, with a focus on Chinese policy easing.
- Risks in fixed income more skewed than in equities - A reflationary shock would represent a significant shift, and one that fixed income markets in particular are not priced for. We find that bond markets appear rich compared to equities across regions.
- Need to be nimble - We have long argued for the need for investors to be nimble in the current backdrop. Our base case remains ‘fragile goldilocks', but the likelihood of our risk scenarios has increased.
To read the full research report, click on the pdf image below: