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House View, April 2021

Asset Allocation

We believe that robust earnings growth will overcome concerns about rate increases. Within a neutral position on developed-market equities, we believe sectoral rotation will continue and we remain overweight cyclical markets like the UK and Japan. But while we believe the attractiveness of stocks subject to wild valuation swings will fade, we continue to like cash-rich ‘structural grower’ stocks.

The rise in the correlation between bonds and equities is underlining the importance of portfolio diversification into alternative assets such as hedge funds.

The case for government bonds is being increasingly challenged by growing debt supply and inflation expectations. We are also conscious of the increased sensitivity of corporate credits, particularly US investment grade, to rising market rates. Our preference goes to short duration. We continue to overweight alternative investments (private equity and hedge funds).


The UK and US may have delivered single jabs equivalent to 70% of their populations by early May. It may take several months after for the euro area to reach a similar level.

We believe the US could achieve 15% annualised GDP growth in Q2 as con_dence improves and households spend again and we have upped our annual GDP forecast to 6.5% in 2021. Despite improving growth and market pressure, we believe the Fed will refrain from raising policy rates before 2024.

We expect the euro area to experience a consumer-led economic rebound in late Q2/early Q3. Our central GDP forecast for the euro area in 2021 is 4.3%, with the UK set for growth of 5.5%.

While its recovery remains uneven, we expect Chinese GDP to grow 9.3% in 2021. Rising global demand should help Japan to 2.7% growth this year.


Despite global re-opening, there are reasons (most notably abundant capacity) to expect the rise in oil prices to moderate as the year progresses. While production discipline is helping prices for now, our year-end target for Brent oil is USD55.


Fiscal stimulus and rapid re-opening of the US economy have led to a rise in real interest rates and boosted the US dollar. We still believe that the dollar’s strength could be challenged as the year progresses and the recovery gathers pace in other countries.


Earnings upgrades continue to support developed-market equities, despite the fast rise in bond yields and elevated multiples. We believe rapid re-opening of economies could stimulate further sectoral rotation and diminish the previous lopsided performance of US stocks, dominated by ‘Big Tech’.

The move away from defensives has been hurting European consumer staple stocks. While falling, the sector still trades at a premium to the overall market. There is potential for consumer staples to pick up momentum later this year should Treasury yields and emerging markets stabilise. Relative valuations have also become more attractive in US consumer staples.

Fixed Income

A fast economic recovery and persistent Fed dovishness mean that we are raising our year-end forecast for the 10-year US Treasury yield to 2.1%. The rise in rates has been hurting US investment-grade credits. We are underweight US high yield, but shorter duration and better quality mean we are neutral its euro equivalent.

Asian Assets

A robust recovery, policy stability and relatively high yields are reasons to consider judicious positioning in Chinese bonds for carry purposes. We also think the Chinese renminbi will remain a powerful anchor for other Asian (ex-Japan) currencies, which are more defensive than other EM currencies. But we are attentive to the impact slow vaccine rollouts and rising US rates have on Asian equities.

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