Benjamin Melman, global chief investment officer at Paris-based Edmond de Rothschild Asset Management, discusses the investment outlook.
A few months ago, Benjamin Melman at Edmond de Rothschild said their outlook was for a disinflation trend, accompanied with a modest recession.
“The data in the last few weeks have not only shown a recovery in western economies but also that the disinflationary trend has been losing steam,” he continued. “What is worrying is that the US residential market appears to be stabilising and even rallying," he said. He questioned that if even this highly interest-rate sensitive sector is no longer contributing negatively to overall growth, then how effective can monetary policy be on the rest of the economy, which remains too dynamic?
Faced with such an economic rebound, Melman believes that central banks will continue their policy of tightening but at a slower rate and for longer, as long as the economic recovery continues.
He is still convinced that disinflation remains the fundamental trend, one that is clearly anchored in the US in spite of economic shifts. However, Melman does not want to overlook today’s fragile equilibria and the risk that last year's problem could emerge again, namely excessively high inflation with central banks playing catch up and ending up tightening more than expected. Therefore, the French asset manager prefers to reduce its portfolio exposures and has gone underweight in equities while moving to a more neutral stance on bonds.
More specifically, the firm has reduced its exposure to US equities and taken advantage of declines in China to slightly raise exposure to equities there. “Recent geopolitical tensions could add to volatility but the fundamental trend suggests a recovery. Signs that China’s property market is recovering have encouraged us to seize this opportunity. This recovery coupled with moderate inflationary pressures is the type of scenario we prefer to see,” Melman said.
“On bond markets, we have trimmed our exposure to emerging-market bonds as they could be more adversely impacted than other markets by further Fed tightening,” he added.