Caution, as seen by the negative view on equities, at least for the moment, appears to be echoed by a number of wealth management firms and private banks in recent weeks. 

Edmond de Rothschild is negative on equities, neutral towards fixed income and currently positive on cash. The blue-blooded European wealth management house is taking a cautious stance amid concerns of weakening global economic growth.

However, the firm said it is optimistic for the medium term, arguing that if inflation weakens in the next few months, this could trigger a rally in stocks. It is not yet ready, however, to position for this, Benjamin Melman, global chief investment officer, asset management, said in a note.

Melman’s comments came two weeks after Federal Reserve chairman Jerome Powell staked out a hawkish stance on monetary policy as the US seeks to curb the kind of inflation not seen for four decades, even if this means pain for the economy. The European Central Bank (which has hiked rates again) appears to be on a similar track. There are also signs that inflation will ease off: production line tensions have eased, and new rents are slowing in the US, while job offers have retreated from record highs.

A reason for not pushing back into equities overall just yet is that the Fed’s “quantitative tightening” programme may become more intense in September, and corporates are trimming their earnings' forecasts, Melman said. 

Caution, as seen by the negative view on equities, at least for the moment, appears to be echoed by a number of wealth management firms and private banks in recent weeks. 

Europe
Edmond de Rothschild is taking an underweight stance on European equities, although not severely. “The key problem for investors is that the current challenge for Europe can be summarised as one single factor: the price of gas – which is both highly political and highly volatile. European assets have factored in a great deal of negative news but have not incorporated the scenario of a severe recession.”

“We therefore prefer to underweight European assets (equities, high-yield bonds) but only to a limited extent. We feel the situation can turn around very quickly and staying away from these listed markets would be costly,” he said. 

Melman added that within the equities space, the firm likes healthcare because it is resilient in an economic slowdown, and areas such as Big Data. He is also positive on Indian investments, which he said offer “durable growth prospects.”

In its updated asset allocation breakdown, Edmond de Rothschild is neutral on the US, the UK, global emerging market equities and convertible equities; it is underweight Europe and J\apan, and overweight China. As far as sovereign bonds are concerned, it is neutral on the US, negative on the eurozone, and negative on emerging markets. It is negative on US and euro investment-grade debt, and on high-yield debt.