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Investment Monthly - September 2021

Higher growth and policy worries have widened the valuation gap between equities and bonds. We favour a pro-risk allocation but being selective is key
01 September 2021
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    Key takeaways:

    • An increase in growth and policy worries have widened the valuation gap between equities and bonds
    • We continue to favour a pro-risk allocation although the transition to the expansionary phase of the business cycle means upside growth surprises are limited and a more selective approach is required
    • Meanwhile, policy headwinds and Covid-related challenges are likely to continue to weigh on EM performance. We move China and Asia ex Japan equities to neutral. Overall, we think EM fixed income valuations are more attractive versus EM equities
    • There are pockets of opportunity in laggard markets that can benefit from a catch-up phase and value exposure. We upgrade Japan to overweight. However, this allocation should be balanced given its implicit bet against the digital economy and quality factor