A just-published report updated our multi-asset recommendations and the prospects for the major financial markets for the next 6-12 months.
We anticipate a steady but gradual unwinding of monetary accommodation in the coming year. This will not pose a threat to the global economic recovery, but it should prove more disruptive for capital markets, given elevated valuations for global government bonds, equity, credit, commodities, and many private assets.
Less-accommodative monetary policy, persistent inflation pressures and extremely poor valuation underpin our continuing maximum underweight stance on fixed income and government bonds within a global multi-asset portfolio. Favor credit and inflation-protected bonds within a fixed income portfolio. For equities, earnings will continue to be a tailwind, although rising interest rates will weigh on valuations and limit total returns on a 6-12 month horizon.
Adding it up, we are maintaining a bias in favor of stocks versus bonds in a multi-asset portfolio, despite the increasing potential for periodic equity corrections.