June 19, 2020

The Big Picture: Eyes wide shut

Paul Jackson. Global Head of Asset Allocation Research and András Vig. Multi Asset Strategist

In the face of what we expect to be the deepest global recession in living memory (by far), equity markets are running with their eyes wide shut into what feels like a trap: they are focusing on policy support and improved economic momentum, while ignoring the earnings chasm that is opening beneath them.

We consider five economic and market scenarios. The chart below reveals a negative skew in our 12-month projected returns, more so for equities than for other cyclical assets. 

If equities are obsessed with good news, gold seems to be focussed on the negative, so that within our Model Asset Allocation we prefer cash, investment grade credit (IG), high yield credit (HY) and real estate.

Regionally, we are focused on emerging market (EM), Japanese and UK assets.

For our more in-depth assessment click here.

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