In our quarterly asset allocation report we detail our Q4 outlook and the key tenets driving our investment view:
- Global growth has peaked, but the global economy will continue to grow at an above-average rate over the next 12 months at least.
- Central banks are now beginning to withdraw policy support, but they are likely to remove this support at a very gradual pace.
- With this backdrop, equities are likely to deliver solid returns over the next 12 months, driven by above-average earnings growth. However, returns should be more “normal” than over the past year and with the potential for higher volatility. We retain our overweight to both domestic and global equities though we have edged Australia up to +3 and edged global down to +1.
- Globally, we favour the cheaper and more cyclical non-US-developed equity markets over the coming 12 months. Emerging markets look very cheap, but significant near-term uncertainty around China policy decisions suggests a neutral position.
- We remain underweight fixed interest. We continue to see government bonds as expensive, particularly against the backdrop of an improving global and domestic economy. Credit should continue to outperform government bonds.
- We retain a 4% tactical overweight tilt to alternatives. We are attracted to the diversification and return enhancement potential within our alternatives opportunity set.
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Written by
David Cassidy, Head of Investment Strategy
David is one of Australia’s leading investment strategists.