1. Global growth surprises to the upside: the global economy is in a Goldilocks phase of stronger growth and modest inflation, supported by low and falling central bank rates, and fiscal spending. The US economy is likely to “run hot” up to November’s mid-term elections.
2. Long-term bond yields rise, led by Japan: since May, Japanese 10-year JGB yields have risen by 1% to 2.3% due to persistent negative real rates and plans for expansive government spending. A positive result for the ruling LDP on 8 February’s snap election should boost Japanese stocks but could put pressure on bond yields and the yen.
3. Emerging markets are back! Emerging markets are attracting inflows from underweight investors, backed by lower rates, tech + commodity exposure, attractive valuations and improving earnings momentum. We are Positive on emerging market stocks and bonds, particularly Latin America and Chinese A-shares.
4. Metals still shine in January: despite recent volatility, precious metals gained 21% and industrial metals 5% over the month, on strong global demand and restricted supply as well as rising geopolitical tensions. We stay Positive on gold and strategic industrial metals like copper.
5. Infrastructure in focus: given growing needs for electricity and given higher government spending. We are positive on Infrastructure as part of a diversified portfolio. Consider an exposure to public listed infrastructure funds/ETFs and private infrastructure funds (higher long-term returns but limited liquidity).
Edmund Shing, PhD
Global Chief Investment Officer
