Markets under the macroscope

Over the last quarter, the core investment views of the Asset Allocation team have remained largely unchanged. Our economic outlook of mid-cycle expansion is consistent with steady but unspectacular returns, but we continue to worry about the latent systemic risks overlooked by the market, and accordingly we have a cautious stance on risk assets.

That is most clearly expressed via a medium-term underweight allocation towards equities. However, growing concerns about tight credit spreads also make us nervous about the return prospects in global high yield and European investment grade debt. Default rates are close to record lows, but so is the compensation for default risk.