We believe that robust earnings growth will overcome concerns about rate increases. Within a neutral position on developed-market equities, we believe sectoral rotation will continue and we remain overweight cyclical markets like the UK and Japan. But while we believe the attractiveness of stocks subject to wild valuation swings will fade, we continue to like cash-rich ‘structural grower’ stocks.
The rise in the correlation between bonds and equities is underlining the importance of portfolio diversification into alternative assets such as hedge funds.
The case for government bonds is being increasingly challenged by growing debt supply and inflation expectations. We are also conscious of the increased sensitivity of corporate credits,