Is there still support for global equity markets?

We believe there is. As the macro outlook deteriorates, central bankers seem to be turning more dovish.

But with that said, we believe investors should still be cautious.

Below is a summary of our short term (0-6 months) tactical asset allocation views.

These views are drawn from our asset allocation software, the ClearENGINE™ .

Not familiar with the ClearENGINE™?

Click here to download our one page tearsheet. Or alternatively click here to view a short video.

The Big Picture

Our short-term (neutral) and medium-term (moderately risk-off) risk-appetite matrices continue to paint a cautious picture for the global economy. As regular readers will know, our core theme over the past few months has been the battle between the dovish turn from central banks set against a deteriorating macro outlook.

For now, dovish central bank communication as shown in our Prattle signal below (and witness the Reserve Bank of Australia hinting at a willingness to cut rates).

And the attendant improvement in economic sentiment –  is supporting global risk.

Should your portfolio be “risk on” or “risk off”?

Our outlook for global equity markets is neutral in the short term. We respect this neutral reading from our risk appetite matrix and recommend global portfolio managers to keep total portfolio equity sensitivity close to benchmark. This is a market that will reward patient and disciplined investing. Our software is designed to help anchor this process, enabling more time to be allocated to quality investment decisions.

Chart(s) of the Week – Spotlight on France

French consumer activity has not been this positive since mid-2017.

Which is helping to drive a much improved short term equity outlook.

Which geographical regions offer the best opportunities?

We initiate a new trade: Long French equities versus Short S&P (US) using iShares ETFs (both USD denominated)  – see trade portfolio below.

What Tactical Asset Allocation opportunities should you focus on?

On a 12 month horizon, ClearENGINE™ is neutral or negative on all major asset classes except Emerging Markets FX.

  • Credit: Moderately Bullish IG EM Sovereigns (USD).
  • Equities: U/W Global.  U/W US vs O/W France.  In EM, U/W S Africa, Philippines.
  • Regions: Neutral
  • Sectors/Styles: Neutral.
  • Government bonds: Neutral.
  • Commodities: Moderately U/W.
  • Forex:

o  O/W DXY (USD); U/W EUR.

o  Moderately bullish EMFX.

TAA portfolio performance

Our tactical trade portfolio is up 0.07% over the last month – with a realised Information Ratio of 0.8 since inception – and an underweight overall global equity risk sensitivity.

We opened one new trade – long French equities / short S&P 500

And we closed one trade – long Hong Kong Equities / short South African equities, at a loss of 7%.

Want to see our tactical asset allocation portfolio?

Click the picture below to download the portfolio report.