Central banks are beginning to remove the crutches that have held up many economies now that post-lockdown recoveries are becoming established: in other words, a tapering of their support is coming.
This is happening at a time when economic data has been disappointing market expectations amid supply chain and labour market bottlenecks and still high Covid infections. More companies have published profit warnings and analysts have been trimming their earnings forecasts.
In the US, contrary to expectations that the end of extraordinary unemployment benefits would lead to a pickup in employment, payroll growth has remained weak.
Despite all this, we remain modestly overweight equities and short bond duration. In our view, there are mitigating factors. Earnings revisions are concentrated in a few industries and economic data surprises are less negative than a month ago. There may be better opportunities to add risk in the near future.
Watch our monthly asset allocation video with chief market strategist Daniel Morris for more analysis and our positioning in the various asset classes.
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.