Repositioning portfolio risk
Key points
The global economy may be nearing an inflection point as we enter the fourth quarter. We see developing inflationary pressures, especially in the U.S., and potential for upside global growth surprises. This backdrop supports exposure to selected credit and equities.
- The global economy appears to be nearing an inflection point, favoring credit and equity relative to long-term government bonds.
- Upbeat economic data last week indicated global growth is holding up, but European bank woes depressed stocks for much of the week.
- U.S. jobs data this week could confirm a December Federal Reserve interest rate increase is the most likely scenario.
Chart of the week
Yields of selected assets: current vs. pre-crisis average
High valuations versus history point to more muted future returns across most asset classes. However, investors are still being rewarded for taking on risk in many areas of equities and credit, especially given the poor compensation for risk in government bonds. Higher-yielding risk assets such as local emerging market (EM) bonds look relatively attractive. These asset classes offer yields closer to pre-crisis levels. See the smaller gaps between the green dots and blue bars above....MORE
The shifting macroeconomic environment
Numerous signs point to a new global growth regime. Our BlackRock Macro GPS economic indicator implies consensus gross domestic product forecasts for the G7 appear too low, even if the growth outlook remains sluggish. We see China avoiding a hard landing and making the gradual transition to a more consumer-driven growth model....
HT: Barron's Income Investing
