Our outlook

House View, July 2021

House View, July 2021

Asset Allocation

We remain tactically neutral on equities overall, believing we could enter a period of market consolidation. But the reflationary trade has not yet fully played out and, as input prices increase, we continue to like companies with pricing power. Rising dividend growth is also a developing theme. We currently prefer euro area equities to their US peers, believing recovery in the euro area will catch up with the US over the summer.

We remain underweight long-dated government bonds, seeing bond yields rising again in H2. We remain neutral on corporate bonds overall, but prefer US paper over European given higher carry. We continue to like infrastructure plays that fit in neatly with our ESG investment theme. We have raised our stance on REITS, which is now closer to our overweight position in alternative investments like private equity and hedge funds.


New covid-19 cases fell to record lows in mid-June, although the new Delta variant is causing concerns in some places. Industrial production and international trade statistics continue to point to a sustained global recovery.

We retain our US GDP growth forecast of 6.5% in 2021 and we see core PCE inflation averaging 2.4% (although risks are to be upside). We are bringing forward our forecast for the first Fed hike from mid-2024 to December 2023. The euro area economy should grow by 4.3% this year, helped by the roll-out of EU recovery funds this summer. While business sentiment is starting to erode, we maintain our 6.5% GDP growth forecast for the UK.

A slower-than-expected recovery in household consumption as well as tightening credit and regulatory standards mean our forecast of 9.2% GDP growth in China this year faces some downside risk. Our forecast for Japanese  growth stands at 2.1%.


Having remained tame for a while, oil prices started to rise again in June, in contrast with the price for industrial metals and other commodities. We think oil prices could continue to rise over the summer (Brent could touch USD85) before cooling down.


While vigorous economic activity and a slightly more hawkish Fed could help the US dollar in the short term, we continue to prefer the euro over the medium term, which should be helped by the direction of ECB policy and a recovery catch-up. Improvements in the euro area and capital outflows could penalise the Swiss franc.


Earnings for developed-world equities are well on their way to surpassing 2019 levels, before the pandemic. Guidance for Q2 earnings is highly positive, but valuations are high in historical terms and relative to bond yields. We remain neutral on developed-market equities.

While stretched valuations will need to be watched in some areas, the earnings season could legitimise our continued interest in sectors such as health care as well as in select consumer staples, semiconductor and financial stocks. In energy, we expect steadily deleveraging and cash-rich oil companies to reward investors through dividends and buybacks.

Fixed Income

The Fed could soon signal a timetable for tapering its asset purchases. This, plus rising real rates, could be a catalyst for Treasury yields to climb toward our year-end target for the 10-year Treasury of 2.1%.

Spread compression means that we see carry as offering more return potential in corporate bonds going forward.

Asian Assets

Asian (ex Japan) equities may find themselves exposed to a rise in US real yields in H2 and recent positive earnings revisions in North Asia could peter out. We maintain a cautiously neutral stance on Asian (ex Japan) equities. A rise in real rates in the US could also be an issue for Asian currencies, although it could cause their recent underperformance versus other EM currencies to fade.

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