David Aujla

Despite evident challenges and downside risks, the overall market backdrop has become relatively more constructive compared to last quarter. Our leading economic and risk appetite indicators point to a positive alignment with the 'recovery' stage of the economic cycle. In this phase, we typically expect modest positive returns across risk assets in the medium-term. As a result, we maintain a moderate risk on stance, favouring an overweight to equities relative to fixed income.  Within equities, we hold a neutral stance between US and developed ex-US markets, however non-US markets are increasingly appealing, particularly for foreign investors. On one hand, US earnings momentum continues to outperform other markets, mostly driven by technology, favouring US equities. On the other hand, our bearish view on the dollar, driven by narrowing yield differentials and positive surprises in global growth, is generally seen as a strong tailwind for international unhedged equity exposures. In fixed income, we increase credit risk to a moderate overweight. However, given spreads near all-time lows, the case for risky credit is limited to harvesting higher yields relative to quality credit and government bonds. We favour emerging market local debt exposure given our more bearish view on the US dollar.

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