The sustainable investor for a changing world

Asset allocation monthly – The next (reopening) wave

Outlooks & Research



Where will economic growth accelerate next as vaccine rollouts allow more and more economies to reopen? Will it now be the turn of continental Europe and then emerging markets?

In the US, stagflation worries have emerged amid signs that growth is peaking. Higher-than-expected inflation numbers have so far not caused inflation expectations over the medium term to move, but we believe this calm will not last. In the eurozone, we see scope for core government bond yields to rise further as economies reopen, inflation expectations rise and the ECB remains dovish.

Uncertainty over the interest rate and growth outlook in the US have left markets looking for direction. This may have damped investor enthusiasm for US equities, leaving room for European equities to make up some of the ground lost relative to US stocks.

In the medium term, though, we expect countries and regions such as Japan and emerging markets to offer better prospects as ‘reopening momentum’ shifts.

We currently favour risk and equities, expecting EM ex-Asia and Japanese equities to benefit from a broadening global recovery. US value stocks have room to catch up with the mega-cap heavy S&P 500. We are long EMU small caps, whose valuations are more attractive relative to large caps.

We are underweight EMU government bonds since we expect yields to continue to rise, but we are long emerging market local debt given the room for EM currency appreciation. We are bullish on commodities over the medium term and have added a long position in US infrastructure via a basket of stocks that should benefit from President Biden’s infrastructure spending plans.

For more on our views and details of our portfolio positioning, read


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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