In this report, we present our assessment and the current macro and market outlook following the latest quarterly asset allocation review last week. We also point out the resulting changes in our tactical positioning. In brief:
- The cyclical macroeconomic backdrop remains reflationary, driven by large government spending programs and a surge in private household savings; it is hence a generally favorable one for growth-sensitive assets
- In response to this robust reflationary outlook, which implies strong growth and normal inflation going forward, long-term US interest rates have also started to rise from extraordinarily depressed levels of late
- The latter creates short-term challenges for some segments of the markets, as the uneven and partly extreme nature of the past year's rally has also partly driven valuations to expensive levels and built up technical imbalances that may need to be corrected
- The most expensive parts of the markets are generally most sensitive to changes in the level of interest rates and technical corrections
Against this backdrop, we refrained from adding to our equity overweight for now. Instead, we trimmed investment grade credit in developed markets to buy more emerging market debt. We also opened a currency position that is in line with our broader reflationary economic assessment, by going long the Norwegian krone against the euro. Finally, we keep our tactical position in gold.
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Note: The next edition of the LGT Beacon is scheduled for April 2021.