Allianz Global Investors’ Post

Transcript

Welcome to our quarterly update. I'm joined here by Greg Hirt, our global CIO, Multiasset and Greg will provide us some thoughts and recent developments in global markets and the implications of our positioning in our multi-asset portfolios. So welcome, Greg. I'm glad that you're here. Thanks for joining us. And now, how do you see the current economic situation in the capital markets? Thanks, Marcus, and it's a pleasure to be back again. Well, although we have received confirmation that the expected soft landing scenario continues to be on track with positive but moderating economic news and inflation that continues to trend lower, even if at a slower rate than previously has happened in the past cycles. The last mile in inflation normalization might be the hardest, and further normalization in services and real estate remains key in completing this process. Global economic growth has likely slowed to its potential from 2.3% in the second quarter. Indeed, after declining May for the first time in six months, our global macro breath indicator posted a small rebound in June, confirming the moderation in economic momentum amid ongoing regional rotation. The start of a gradual economic recovery in Europe and the loss of momentum in the U.S. emerging economy is well led by China and India are experiencing a less positive situation. Of course, recent developments, especially in France and in Europe, serve as a strong warning that political downside risk for the economy may continue to build over the coming quarters. While elections are a reminder of how fiscal discipline will be carefully watched by markets. Attention is moving to the US, where the campaign is heating up amid presidential debates and Supreme Court rulings. Thanks, Craig. And how is this translating to the capital markets? Well, excellent question, actually. Sliding inflation should be supportive for bond markets and we remain fundamentally positive on duration. However, as mentioned, the last inflation mile is always going to be the toughest. And so we have moved towards a preference for curve steepen. There's traits that benefit from escalating yield differences. Looking at equities, markets remain supported by solid momentum. The view that central banks have now pivoted on interest rates, as well as the soft landing scenario, which is really playing out for equity markets. At the same time, market risk in the US continues to narrow and be driven by a few selected stock. We would expect more and this is why we have turned to a mildly positive stance in the US while we look for a broadening in equity performance. Now, aside from Japanese equities, which have been our favorite for quite a long time now, we have also become progressively more positive on UK equities, which are characterized by positive momentum, interesting valuation, and are quite underrated by many investors. The elections have also produced the predicted results and we're now expecting closer collaboration that you on trade and tariffs. Finally turning to currencies, we have been somewhat surprised by the relative stability of the US dollar against the euro. We might have expected a stronger appreciation of the greenback given the uncertainties in Europe regarding the yen. Higher interest rates and the record undervaluation certainly provides an argument for attention. But well, you know, the lack of clarity from the Bank of Japan doesn't yet offer a catalyst for the currency to recover. We will wait for a bit more here. Okay. And how about the situation in the emerging market? Well, you know, emerging market equities are probably our least favorite at the moment in relative terms to the other equity markets, though, this is less pronounced that in the recent past. Indeed, China is showing signs of revival and it's certainly not the no go for investors that it was in the last few years. Furthermore, local central banks in emerging markets are gaining credibility in terms of fighting inflation, and their fiscal policies are certainly gaining credibility is certainly explain why we have a positive view on emerging market debt, especially in hard currency. Okay. Thank you, Greg. And finally, could you say something about your current convictions? What's exciting you right now? Well, we continue to be positive on gold. It's an evergreen in terms of diversification. And secondly, post-election, the UK may finally be regaining its reputation for being boring, and it's hopefully entering a period of sustained stability. This predictability, combined with its current status of one of the cheapest market in the world, makes the UK particularly interesting for investors like us at the moment. Now, the last point is the reemergence of positive interest rates and this has been really a game changer for European banks that are supported by positive net earnings and valuations that remain attractive. So this is certainly a place we want to be. It has also led to strong earnings growth and increased profitability, and this should be sustained as long as rates to somewhere between two and 4%. Now, of course, we should also factor in risks such as a changing political situation and the danger of windfall taxes on banks profits. Yet we will believe the sector represent an attractive opportunity. Thank you very much, Greg, for your insights and the quarterly update of Multiasset. And thank you for joining us. Thank you, Marcus. Thank you all and looking forward to seeing you in a quarter