Investment Outlook, November 2018

VIDEO TRANSCRIPT

Hello! This month's topic is interest rates. We've seen a large increase in the U.S. rates over the last few months, and investors are starting to ask, are we reaching a tipping point where that's start impacting other asset classes.

So, what we've done is we've looked at not just the level of ten year yields, which in the U.S. is about 3%, roughly around 3.15% presently. But, after inflation, that number drops to about 1%.

So, our definition of real yield, or the yield after inflation is still relatively low. But, what is the implication for other asset classes?

Firstly, for U.S. equity, we see a mixed signal when real yields are between 1 and as they go up for 3%. So, that's why we're seeing the heightened volatility.

However, for Asian equities we see a more largely positive result when real yields are between 1 and they go above 1% overall. And, what about credit?

Credit we see again, tend to see more positive reaction as real yields go above 1% or the yield after inflation. But, what is our forecast? Are we changing it now after this increase in yields?

We still are sitting with one more Fed rate rise this year and two more next year. And, our forecast for the 10 year yield is 3.25% and remains unchanged. So, at this point we're not changing our interest rate forecast, and we think we're closer to the end of the interest rate cycle, certainly than the beginning.

Thank you very much.