Multi-asset investing: Despite trade risks, growth assets have room to run

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This is a sponsored article from PineBridge Investments.*

Amid rising economic and political uncertainty, it’s natural to think the prospects for risk-taking are dimming. As PineBridge’s portfolio manager for global multi-asset Sunny Ng explains, political factors are obscuring positive forces in the market.

An array of cross-currents confronts global markets, but they appear positive on balance. Trade tensions have weakened confidence in pockets of Asia and Europe, yet not in the US. China, in a reversal of its deleveraging stance, now supports tariffs, currency weakness, and monetary and fiscal thrusts. Domestic growth has become a priority to build a buffer against trade, yet re-leveraging China is risky and cannot go on for long given the high degree of existing leverage. While trade-related risks have risen, valuations have reset and financial conditions remain accommodative.

We remain constructive on global markets, with a generally bullish stance over the intermediate term, we believe the pace of today’s earnings growth, accompanied by mild inflation, points to mid-cycle dynamics; and we expect a re-acceleration of growth, with the next leg up characterised by productivity. After a slowdown in growth — largely due to the lack of business investment — companies are now stepping up investment spending. Having seen peers and other businesses being disrupted, today’s business investment is aimed at incorporating disruptive technologies. This investment will drive higher productivity and better profitability, which will extend the cycle beyond what most are expecting. Second quarter earnings continue to confirm broad global momentum, with exceptional US strength and weaker — yet still healthy — earnings growth outside the US. With all of this in mind, we expect corporate cash flows to grow into and beyond today’s prices.

What it all means for asset allocation
Multi-asset strategies help investors navigate market dislocations by allowing them to dynamically shift allocations across asset classes as market conditions change. In this tug of war between potential downsides and upsides, we believe investors need to adopt an intermediate-term view on how the landscape is likely to change and position their asset allocations to maximise opportunities and reduce risk. Here is ours:

  • Lower prices and robust fundamentals make growth assets more attractive.
  • Developed market bonds remain unattractive, particularly in the eurozone.
  • EM debt has become relatively more attractive, but only due to a few outliers.
  • Commodity-related assets are attractively valued with supportive supply/demand dynamics.
  • Private assets require selectivity and future-proofing.

Overall, we believe there’s room to run — economic fundamentals continue to indicate we are closer to the middle of the cycle than the end, and valuations are reasonable relative to anticipated earnings growth.

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Potential investors should consider the following key risks before investing in any of the Strategies mentioned:

Market Volatility Risk: All types of investments and all markets are subject to market volatility based on prevailing economic conditions. Price trends are determined mainly by financial market trends and by the economic development of the issuers, who are themselves affected by the overall situation of the global economy and by the economic and political conditions prevailing in each country. As securities may fluctuate in price, the value of your investment may go up and down.

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FDI Risk: The prices of FDI can be highly volatile. In addition, the use of FDI also involves certain special risks depending on the type of FDI, including but not limited to correlation risk, counterparty credit risk, legal risk, settlement risk, margin risk, as well as other possible risks that may arise.

Equity Risk: The value of shares and securities related to shares may fall due to issuer related issues, financial market dynamics and world events including economic and political changes.

Country Concentration Risk: A concentrated investment strategy in equity and equity-related securities of companies related to the economic development and growth of India may be subject to a greater degree of volatility and risk than a portfolio which is diversified across different geographic regions.

Emerging Market Risk: Emerging markets are typically smaller, less transparent and subject to evolving, less stable political and regulatory regimes.

All investments are subject to regional, industry, market, political, regulatory, competitive, business, financial, and other risks. The risk factors described should not be considered an exhaustive list of risks, which potential investors should consider before investing in the strategy. All investment decisions should be made based on an independent evaluation in consultation with financial and legal advisors.

The source of the information in this document is from Global Multi-Asset team of PineBridge Investments unless otherwise specified.

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This is a sponsored article from PineBridge Investments.*

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