As inflation continues to slow and economic growth remains resilient we upgrade stocks to overweight as part of a tactical move.
Asset allocation: window of optimism
For once, it has been quite a positive start to the new year – at least as far as the world economy is concerned. Slowing inflation appears to justify a pivot in monetary policy towards interest rate cuts, while growth has been resilient enough to suggest that the economy can avoid a hard landing.
As long as this Goldilocks scenario holds, riskier assets should benefit. Therefore, we upgrade global equities to overweight, balancing this with an underweight in cash. As interest rate cuts start to come through, holding money in cash or equivalents will become increasingly unattractive. Our stance on bonds, meanwhile, remains neutral.
We view this allocation shift as a short-term move. Much like Goldilocks’s porridge won’t stay the perfect temperature for ever, we believe the global economy will eventually start to cool and bonds will regain the upper hand over equities.
Click here to read the full February Barometer.
