Some economic variables are so fundamental that they determine the outlook for almost every asset class. Amongst these, the GDP outlook for the world’s major economies surely tops the list of systemically important variables. Indeed, this variable is the central determinant of inflation, real interest rates, corporate earnings growth, and currency markets – consequently the expected return for every major asset class. In a world of big governments, policy developments increasingly dominate the economic landscape. US trade policy (“trade war”) and the Italian elections have won the recent headlines. There are also shifts taking place in global monetary and fiscal policy that will profoundly affect markets in coming years. While we are in a time of transition and turbulence, we think the fundamentals still justify a basically optimistic and pro-growth bias in asset allocation. This section explores a few key judgements that support this view.
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