MAI views

Multi-Asset Investments views – February 2020 – The market is climbing a wall of worry

Not for Retail distribution: this document is intended exclusively for Professional, Institutional, Qualified or Wholesale Investors / Clients, as defined by applicable local laws and regulation. Circulation must be restricted accordingly

Our key convictions :

  • We continue to overweight equities as positive developments (Central banks easing, Phase 1 Trade Deal signature, Brexit ) release some pressure and should allow global growth to navigate a soft landing in 2020
  • We maintain a cyclical tilt in our equity exposure as macro data suggests the manufacturing cycle has bottomed out
  • We remain positive on Euro High Yield as a dovish Fed, ECB and BOJ are supportive of carry positions
  • We remain constructive on Eurozone and US inflation breakevens as market pricing remains too pessimistic


Our positioning:

  • Overweight equities
  • Cyclical tilt in our equity exposure (including call option on banks)
  • Positive Euro High Yield
  • Positive US and Eurozone inflation breakeven
  • Long equity call options delta hedged to protect the portfolios where possible

Our views

Market sentiment is currently resolutely optimistic. True, there remains several areas of concern; not least the US election and impeachment, trade worries, weak capex, heavy corporate debt and geopolitical risks, but the path of least resistance is currently up for risk assets. Indeed, it was striking to see that on the night when Iran launched ballistic missiles on a US base in Iraq, S&P 500 futures briefly dropped 2% but to quickly recover and finish the day up while implied volatility barely moved. This is all the more surprising given that President Trump had promised a few days before a quick retaliation on more than 50 targets in case of an attack from Iran and that US equity futures long positioning is near record highs now, pointing to very stretched speculative positioning. Short term, this positioning could be In normal times it should have triggered a more vigorous market reaction. So why are markets so resilient?

The positives are simply more powerful in our view, at least for now. Monetary stimulus is still increasing and financial conditions are still easing (cf. chart below) as central banks continue to cut rates across the board, Mexico and South Africa being the most recent. As a result, global short rates continue to fall, down 50bps from a year ago. Monetary stimulus is driving up asset prices, particularly stock prices and the housing sector. For instance, US December housing starts released last week were incredibly strong, surpassing all economists’ expectations and their highest level since December 2006. Ironically, the increase in asset prices could be self-fulfilling as the resulting rise in consumer net worth is likely to support consumption and then GDP growth in 2020.

All this in a context where global trade could be already accelerating. The IMF, in its most recent report released earlier this week expects global trade growth to be 2.9% this year after 1% last year, boosted by the trade truce between the US and China. Anecdotally, China December trade data surprised significantly to the upside as exports jumped by 7.6% YoY, and import growth accelerated sharply to 16.3% YoY. Trade data from Korea confirms this improvement. History tells us that the S&P is likely to continue to increase until a recession is in the distance. We are simply not yet there.

Financial conditions continue to ease

This communication is for professional clients only and must not be relied upon by retail clients. Circulation must be restricted accordingly. This communication does not constitute an offer to buy or sell any AXA Investment Managers group of companies’ (‘the Group’) product or service and should not be regarded as a solicitation, invitation or recommendation to enter into any investment transaction or any other form of planning. It is provided to you for information purposes only. The views expressed do not constitute investment advice, do not necessarily represent the views of any company within the Group and may be subject to change without notice. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Past performance is not a guide to future performance. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding. Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for independent advice. Some of the investment vehicles mentioned may not be available in certain jurisdictions. Please check the countries in which they are registered with the asset manager. AXA INVESTMENT MANAGERS PARIS, a company incorporated under the laws of France, having its registered office located at 6, Place de la Pyramide 92908 Paris – La Défense cedex – France, a “société anonyme” with capital of euros 1 384 380 registered with the Nanterre Trade and Companies Register under number 353 534 506, a Portfolio Management Company, holder of AMF approval no. GP92008, issued on 7 April 1992