22 May 2017

China and Trump could deliver another volatile summer for markets

4 min read

 
Margherita Orlandini, Corporate PR Manager, Royal London

Margherita Orlandini

Corporate PR Manager, Royal London

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Royal London Asset Management’s Multi Asset team share their latest global market analysis and asset allocation calls:

The upswing in global growth is coming off the boil and inflation pressures are easing, prompting Royal London Asset Management’s multi asset team to take profits in equity markets after a strong run. Long term fundamentals remain positive, however, and they expect to buy dips over the summer as volatility picks up from historic low levels.

The Investment Clock model1 that the team uses to guide their asset allocation strategy has been in the Overheat phase of the business cycle after the strongest surge in global growth and inflation since the financial crisis. However, business survey readings are falling from recent highs and outside of the UK, inflation looks to be peaking as increases in commodity prices have stalled.

A move away from Overheat is good for bonds and the team has reduced underweight positions in the multi asset funds they manage. Stocks may not take negative news on growth kindly in the short run and they have taken profits to reduce overweight positions.

Stock markets often move sideways over the summer and volatility tends to rise. This year may prove no exception. Negative surprises could come from doubts about the ability of President Trump to implement planned stimulus measures or signs of weaker economic activity generally. The upswing in stocks started amid the China devaluation shock of early 20162, so markets will be particularly sensitive to signs that tightening measures in China are starting to take effect.

Commenting, Trevor Greetham, Head of Multi Asset at Royal London Asset Management, said:

We could see a pickup in volatility this summer with the economic upswing starting to cool off and geopolitical risks running high. But eight years on from the Great Recession, there is still little sign of the late cycle surge in wages that leads central banks to raise interest rates and call the expansion in the world economy to a halt. The bull market in equities has further to run and we stand ready to buy dips. An overweight position in global high yield bonds should pay off if an increase in volatility doesn’t materialise and markets simply muddle through the summer period.

The latest edition of the Investment Clock can be downloaded here.

chart 1

Chart 1: A move away from the Investment Clock “Overheat” would be positive for bonds

Chart 2: Investor Sentiment and Stock Prices – be greedy when others are fearful

For further information please contact:

Margherita Orlandini, Corporate PR Manager, Royal London

About Royal London Asset Management (RLAM):

Established in 1988, Royal London Asset Management (RLAM) is one of the UK's leading fund management companies, providing investment management solutions to both wholesale and institutional clients such as not-for-profit organisations, local authorities and the insurance sector.

RLAM manages £114 billion of assets and employs 92 investment professionals as at December 2018. It invests in all major asset classes including UK and overseas equities, government bonds, investment grade and high yield corporate bonds, property and cash.

For professional clients only, not suitable for retail investors.

Issued February 2019 by Royal London Asset Management Limited, registered in England and Wales number 2244297; authorised and regulated by the Financial Conduct Authority. Registered Office: 55 Gracechurch Street, London, EC3V 0RL.

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