This week, Amundi Asset Management released its global investment outlook.

Markets have remained range-bound in the past few weeks as they try to judge the direction of monetary policies, economic growth, and the inflation trajectory, regarding which the assessment is further complicated by the Israel-Hamas war.

Amundi Asset Management expects a mild US recession in the first half of 2024. Higher-for-longer rates and tight financial conditions, along with other factors, keep the firm concerned about the global economic outlook.

Ambiguity on monetary policy raises expectations of a hawkish pause, the firm said in a statement this week. The Middle East conflict also raises inflation uncertainty, vis a vis potential oil price rises, but so far there has been a relatively muted response in safe-haven assets to the conflict. See more here. 

Asset allocation
“In this environment of restrictive financial conditions, investors should build balanced portfolios, with a focus on quality and sustainability of earnings and dividends,” Vincent Mortier, group chief investment officer, said.

With an overall cautious view, he sees opportunities in cross assets. “The economic backdrop and valuations favour a positive stance on duration, with some pressure from inflation. We stay positive on US Treasuries and are becoming more constructive on Europe, including on the short end of the curve,” he continued. “In equities, while we are cautious on developed markets, we upgraded Japan to neutral in light of a domestic recovery. In Forex (FX), concerns on US inflation and higher-for-longer US rates could provide some short-term fillip to the dollar,” he said.

Therefore, he turned tactically positive versus select Asian FX and the low-yielding Swiss franc. But he maintains that a Fed pivot would cause dollar weakness in the medium term. He also became constructive on oil for diversification and thinks investors should enhance portfolio hedges.

Fixed income
Mortier believes that government bonds offer strong long-term prospects, after a sharp upward move in yields. Amid risks of an economic slowdown, he thinks bonds will act as a diversifier. But short term, the situation is tricky, depending on incoming data, leading him to be agile. He is positive on the US, neutral on core Europe, and cautious on Japan. In corporate credit, he maintains his slightly positive view tilted to high quality, such as investment grade, where he sees no or limited scope for a deterioration in fundamentals. “Overall, the need to differentiate is high,” Mortier said.

Equities
Mortier is cautious on the US, particularly megacaps, European equities, and neutral on Japan. “Markets are moving from corporate rhetoric to concrete impacts on bottom lines. While a growth slowdown makes us cautious on cyclicality, there is a need to distinguish within cyclicality: businesses that would benefit from secular themes like electrification, near shoring, present opportunities,” he continued.

Emerging markets
“Emerging markets offer attractive returns, but there is a need to show selectivity in favour of best-in-class companies and countries that can deliver productivity growth,” Mortier said. “Hard currency and corporate debt offer good carry and within these we like high yield but focus on quality,” he added. The firm believes that emerging market debt offers good income potential. India, which is the second-largest bond market in the emerging market space, offers a compelling opportunity, the firm added.

In equities, Mortier is neutral on China and believes in government actions that are meant to soften the slowdown. He sees value in India and Brazil, and other Latin American countries.