Insight

The Big Picture: Investing in an uncertain world

The Big Picture: Investing in an uncertain world
How does one invest in a world facing extreme uncertainty? Invesco’s Global Market Strategy team analyzes implications for asset allocation.

How does one invest in a world where a deadly virus is forcing a global shutdown, where oil price is collapsing, and where policy makers are taking extreme measures to soften the blow?

This extreme uncertainty has been reflected in the volatility and rising correlations displayed by financial markets. It is easy to panic and run for the hills (both literally and by adopting an extremely defensive portfolio stance) but it is not obvious which assets now offer diversification.

Given the extreme uncertainty, Invesco’s Global Market Strategy team has adopted a scenario based approach in the latest Big Picture quarterly review of global asset allocation.  For example, the “very best” scenario gives an S&P 500 12-month target of 3000. At the other extreme, the “very worst” scenario, akin to the Spanish flu pandemic with GFC financial market conditions, suggests a 12-month S&P 500 target of 1400 (perhaps going lower in the meantime). A probability weighted approach leads us to a barbell strategy, with cash and gold the favoured “defensive” assets and real estate and commodities the favoured “cyclical” assets. Interestingly, IG credit would be favoured in all scenarios.

Click on “Download PDF” to read their analysis.