While economic uncertainty continues, recession risks appear reduced and the outlook for equities remains positive as thelatest allocation calls from Schroders’ Multi-Asset investment team highlighted below:
Key:
🟢 Long / positive
🟡 Neutral
🔴 Short / negative
🔼 Up from last month
🔽 Down from last month
Main Asset Classes
🟢 🔼 Equities
We remain positive on equities. While economic uncertainty persists, it is important to keep an eye on how companies respond. However, we think downside risks are contained and the risk of recession this year is lower.
🟡 Government bonds
We remain neutral. Yields are higher and valuations look better, but we still have concerns about rising debt and ongoing inflation risks in the US. Inflation is less of a worry outside the US.
🟡 Commodities
Global manufacturing is still weak, which is holding back demand. Supplies of metals remain tight. Oil prices have jumped because of geopolitical risks, but higher production should help keep prices steady over the medium term.
🟡🔼Corporate bonds (credit)
We upgrade our view to neutral. Valuations are high, especially in the US, but the growth outlook is steady and major risks are easing. Consumer confidence also remains strong.
Equities
🟢US
We keep our positive view on US equities. We are optimistic that over the rest of the year, the market will focus on pro-growth policies that should benefit US growth and sentiment.
🟡 UK
We stay neutral on UK equities. While earnings growth is positive, it has fallen substantially, and earnings surprises continue to be negative. In addition, valuations do not appear cheap.
🟢 Europe ex UK
We maintain a positive view on European equities driven by reasonably fair valuations, strong inflows showing domestic demand, and a stable earnings outlook.
🟢 Japan
Supportive macro trends, such as rising inflation expectations, wage growth, and accommodative financial conditions, combined with greater clarity on tariffs, are expected to favour Japanese equities.
🟢 Global Emerging Markets (EM)1
We remain positive on emerging market equities. A weaker dollar, supportive trade negotiations and encouraging policy developments in countries such as Brazil and India are acting as positive catalysts for emerging markets.
🟡 Asia ex-Japan: China
We stay neutral on China. While growth forecasts remain steady, there are concerns about domestic economic weakness and the inflationary impact of tariffs.
🟡 EM Asia ex China
Although Asian markets avoided immediate tariffs, their dependence on Chinese imports poses risks.
1Global Emerging Markets includes Central and Eastern Europe, Latin America, and Asia.
Government bonds
🔴 US
We remain negative as we believe rising government bond supply may keep yields higher for longer. Also, government bonds are no longer providing the same level of safety they usually do when markets are uncertain.
🟡 UK
We maintain our neutral score. While valuations appear attractive, inflation expectations in the UK are a concern and the Bank of England (BoE) will be cautious about cutting rates.
🟢 Europe
We maintain our preference for German bonds as a safe-haven position. Germany’s fiscal situation is expected to stay disciplined, and inflation should remain under control.
🟡 Japan
The Japanese government has a strong incentive to support long-term government bond yields, however we remain neutral due to inflation concerns.
🟡 US inflation-linked bonds
We hold a neutral view on break evens, as low commodity prices are balancing out higher tariffs.
🟢 Emerging markets local currency bonds
We maintain a positive view. Several emerging markets have supportive policies and should benefit from a weaker US dollar and the higher interest rates they offer investors.
Investment grade credit
🟡🔼 US
We upgrade our view to neutral as the biggest risks seem to have passed. Now, the market can pay more attention to deregulation and government spending.
🟡 Europe
We stay neutral. Spreads are more attractive relative to the US, supported by a healthy growth picture, robust demand and improved positioning.
🟡 Emerging markets USD
We maintain a neutral stance due to elevated valuations. Given the asset class’s heavy concentration in Asia, it remains sensitive to tariff developments.
High yield bonds (non-investment grade)
🟡🔼 US
We upgrade to neutral. While valuations are unattractive, the sector should benefit from growth stabilising, a pick-up in demand and positive consumer sentiment data.
🟡 Europe
We remain neutral. Valuations are expensive but less so compared to the US. The growth picture looks positive, and demand for the region is starting to return.
Commodities
🔴 Energy
Oil prices have gone up recently because of geopolitical concerns and are likely to remain at current levels while this uncertainty persists. However, we expect incoming supply to eventually outweigh demand, and once the current uncertainty fades, we expect prices to come down again.
🟢 Gold
The price has stabilised as some of the reasons for demand have eased, so it no longer looks overvalued. We remain positive, as gold remains a valuable diversifier amid fiscal concerns and geopolitical tensions.
🟡Industrial metals
We stay on the side-lines. Recent reports from the US, China and Asia show a slowdown in manufacturing, which points to lower demand for metals. Even though there are still supply shortages, this could lead to an imbalance in the market.
🟡 Agriculture
We remain neutral. Fundamentals are not giving a clear signal about where prices are headed next. Many traders are betting that prices will fall across different crops, but this kind of data does not reliably predict future price moves.
Currencies
🔴 US $
We maintain a negative outlook on the US dollar, reflecting its diminished diversification benefits and the unpredictability of current US policy.
🟡 UK £
We stay neutral. The UK is facing challenges with inflation, but expectations for interest rate cuts may be too high. This could help support sterling.
🟢 EU €
We maintain a positive view on the euro as valuations are attractive. We believe investors are reducing exposure to the US dollar and are switching into the euro.
🟡 CNH ¥
We are cautious on the currency as it is vulnerable to any further escalation in US-China trade tensions.
🟢 JPY ¥
There is an expectation that the Bank of Japan will move towards policy normalisation as wage and services inflation continues to rise. We expect this to support the yen.
🟡 Swiss franc ₣
We stay neutral on the Swiss franc. Whilst an effective diversifier, we are cautious due to notably low carry.
