Fixed Income
We remain Underweight sovereign bond markets. Interest rates look attractive in that they are again paying positive returns, adjusted for inflation hedges, amid rising uncertainty about global growth. Bond markets, however, remain vulnerable to fresh upside surprises on inflation.
Equities
With growth outlooks deteriorating and inflation still running high, we remain Underweight on this asset class and are picking sectors with even greater prudence. We favour the UK given its defensiveness, inflation sensitivity and attractive valuations.
FX Rates
The dollar has weakened over the last two weeks against most other currencies. It is still likely to remain high given the deteriorating economic outlook, the interest rate differential and geopolitical risks.
Alternative
We retain our Overweight to commodities, gold, hedge funds and our Tail Risk Protection Note. We have recently added a position in real assets, which offers additional diversification from other risk assets such as equities, as well as an attractive income stream and reasonable sensitivity to inflation.
